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NOTE 3. Triangular Intervention

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Chapter 3, Triangular Intervention

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A triangular intervention, as we have stated, occurs when the invader compels a pair of people to make an exchange, or prohibits them from doing so.

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Thus, the intervener can prohibit the sale of a certain product, or can prohibit a sale above or below a certain price.

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Price.

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We can therefore divide triangular intervention into two types.

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Price control, which deals with the terms of an exchange, and product control, which

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deals with the nature of the product or of the producer.

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Price control will have repercussions on production and product control on prices, but the two

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Two types of control have different effects and can be conveniently separated.

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1. Price Control

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The intervener may set either a minimum price below which a product cannot be sold, or a

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maximum price above which it cannot be sold.

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He can also compel a sale at a certain fixed price.

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In any event, the price control will either be ineffective or effective.

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It will be ineffective if the regulation has no current influence on the market price.

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Thus, suppose that automobiles are all selling at about 100 gold ounces on the market.

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The government issues a decree prohibiting all sales of autos below 20 gold ounces on

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on pain of violence inflicted on all violators.

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This decree is, in the present state of the market, completely ineffective and academic,

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since no cars would have sold below 20 ounces.

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The price control yields only irrelevant jobs for government bureaucrats.

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On the other hand, the price control may be effective.

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Let us assume that the intervener imposes a maximum control price, above which any sale

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becomes illegal.

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At the control price, the market is no longer cleared, and the quantity demanded exceeds

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the quantity supplied.

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In the ensuing shortage, consumers rush to buy goods that are not available at the price.

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Some must do without.

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Others must patronize the market, revived as black or illegal, while paying a premium

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for the risk of punishment that sellers now undergo.

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The chief characteristic of a price maximum is the queue, the endless lining up for goods

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All sorts of subterfuges are invented by people desperately seeking to arrive at the clearance provided by the market.

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Under the table deals, bribes, favoritism for older customers, etc. are inevitable features of a market shackled by the price maximum.

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The more resources will shift out of production, the more aggravated, ceteris paribus, the shortage will be.

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If the price control is selective, that is, is imposed on one or a few products,

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the economy will not be as universally dislocated as under general maxima.

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But the artificial shortage created in the particular line will be even more pronounced,

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Since entrepreneurs and factors can shift to the production and sale of other products, preferably substitutes, the prices of the substitutes will go up as the excess demand is channeled off in their direction.

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In the light of this fact, the typical government reason for selective price control, we must impose controls on this product as long as it is in short supply, is revealed to be an almost ludicrous error.

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For the truth is precisely the reverse. Price control creates an artificial shortage of the product, which continues as long as the control is in existence.

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In fact, becomes ever worse as resources continue to shift to other products.

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Before investigating further the effects of general price maxima, let us analyze the consequences

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of a minimum price control, that is, the imposition of a price above the free market price.

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Under such circumstances, the quantity demanded is less than the quantity supplied.

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Thus, while the effect of a maximum price is to create an artificial shortage, a minimum

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price creates an artificial unsold surplus.

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A more elastic supply will, Ceteris Paribus, aggravate the surplus.

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Once again, the market is not cleared.

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The artificially high price attracts resources into the field, while at the same time it

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discourages buyer demand.

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Under selective price control, resources will leave other fields where they serve their

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owners and the consumers better and transfer to this field where they overproduce and suffer

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losses as a result.

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This illustrates how intervention, by tampering with the market, causes entrepreneurial losses.

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Resources operate on the basis of certain criteria. Prices, interest rates, etc. established

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by the free market. Interventionary tampering with these criteria destroys the adjustment

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and brings about losses, as well as misallocation of resources in satisfying consumer wants.

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General overall price maxima dislocate the entire economy and deny the consumers the

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enjoyment of substitutes.

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General price maxima are usually imposed for the announced purpose of preventing inflation,

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invariably while the government is inflating the money supply by a large amount.

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All price maxima are equivalent to imposing a minimum on the purchasing power of the money

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unit, the PPM.

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An imposed minimum PPM above the market impairs the clearing mechanism of the market.

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The money stock exceeds the money demanded.

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As a result, the people possess a quantity of money in unsold surplus.

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They try to sell their money by buying goods, but they cannot.

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Their money is anesthetized.

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To the extent that a government's overall price maximum is upheld, a part of the people's

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money becomes useless, for it cannot be exchanged.

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But a mad scramble inevitably takes place, with each one hoping that his money can be

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used.

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Ironically, the government's destruction of part of the people's money almost always

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takes place after the government has pumped in new money and used it for its own purposes.

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The injury that the government imposes on the public is thus twofold.

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One, it takes resources away from the public by inflating the currency, and two, after

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After the money has percolated down to the public, it destroys part of the money's

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usefulness.

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Favoritism, lining up, bribes, etc., inevitably abound, as well as great pressure for the

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black market, that is, the market, to provide a channel for the surplus money.

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A general price minimum is equivalent to a maximum control on the PPM.

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This sets up an unsatisfied excess demand for money over the stock of money available,

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specifically in the form of unsold stocks of goods in every field.

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The principles of maximum and minimum price control apply to all prices, whatever they

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Consumer goods, capital goods, land or labor services, or the price of money in terms of other goods.

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They apply, for example, to minimum wage laws.

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When a minimum wage law is effective, that is, where it imposes a wage above the market value of a type of labor

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Above the laborer's discounted marginal value product, the supply of labor services exceeds the demand, and this unsold surplus of labor services means involuntary mass unemployment.

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Selective, as opposed to general, minimum wage rates, create unemployment in particular industries, and tend to perpetuate these pockets by attracting labor to the higher rates.

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Labor is eventually forced to enter less remunerative, less value productive lines.

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The result is the same whether the effective minimum wage is imposed by the state or by

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a labor union.

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Our analysis of the effects of price control applies also, as Mises has brilliantly shown,

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to control over the price, exchange rate, of one money in terms of another.

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This was partially seen in Gresham's Law, but few have realized that this law is merely

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a specific case of the general law of the effect of price controls.

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Perhaps this failure is due to the misleading formulation of Gresham's Law, which is usually

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Phrased, Bad Money Drives Good Money Out of Circulation.

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Taken at its face value, this is a paradox that violates the general rule of the market

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that the best methods of satisfying consumers tend to win out over the poorer.

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Even those who generally favor the free market have used this phrasing to justify a state

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monopoly over the coinage of gold and silver.

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Actually, Gresham's law should read, money overvalued by the state will drive money undervalued

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by the state out of circulation.

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Whenever the state sets an arbitrary value or price on one money in terms of another,

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it thereby establishes an effective minimum price control on one money and a maximum price

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and the price control on the other, the prices being in terms of each other.

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This, for example, was the essence of bimetalism.

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Under bimetalism, a nation recognized gold and silver as monies,

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but set an arbitrary price, or exchange ratio, between them.

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When this arbitrary price differed, as it was bound to do from the free market price,

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Such a discrepancy became ever more likely as time passed and the free market price changed,

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while the government's arbitrary price remained the same.

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One money became overvalued and the other undervalued by the government.

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Thus suppose that a country used gold and silver as money, and the government set the

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The ratio between them at 16 ounces of silver to 1 ounce of gold.

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The market price, perhaps 16 to 1 at the time of the price control, then changes to 15 to

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1.

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What is the result?

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Silver is now being arbitrarily undervalued by the government, and gold arbitrarily overvalued.

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In other words, silver is forced to be cheaper than it really is in terms of gold on the

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market, and gold is forced to be more expensive than it really is in terms of silver.

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The government has imposed a maximum price on silver and a minimum price on gold in terms

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of each other.

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The same consequences now follow as from any effective price control.

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With a maximum price on silver and a minimum price on gold, the gold demand for silver

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in exchange exceeds the silver demand for gold.

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Gold goes begging for silver in unsold surplus, while silver becomes scarce and disappears

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from circulation.

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Silver disappears to another country or area where it can be exchanged at the free market

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price, and gold in turn flows into the country.

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If the bimetallism is worldwide, then silver disappears into the black market, and official

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or open exchanges are made only with gold.

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No country, therefore, can maintain a bi-metallic system in practice, because one money will

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always be under or overvalued in terms of the other.

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The overvalued will always displace the undervalued from circulation.

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It is possible to move by government decree from a specie money to a fiat paper currency.

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In effect, almost every government of the world has done so.

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As a result, each country has been saddled with its own money.

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In a free market, each fiat money will tend to exchange for another according to the fluctuations

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in their respective purchasing power parities.

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Suppose, however, that currency X has an arbitrary valuation placed by its government on its

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The Theory of Money and Credit

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Europe after World War II.

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The European governments all overvalued their national currencies in terms of American dollars.

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As a consequence of the price control, dollars became short in terms of European currency,

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and the latter became a glut looking for dollars without finding them.

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Another example of money ratio price control is seen in the ancient problem of new versus

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worn coins.

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There grew up the custom of stamping coins with some name, designating their weight and

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specie in terms of some unit of weight.

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Eventually, to simplify matters, governments began to decree worn coins to be equal in

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and value to newly minted coins of the same denomination.

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Perhaps one of the reasons was that state mint monopolies, instead of serving customers

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with desired coins, arbitrarily designated a few denominations that they would mint and

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circulate.

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A coin of slightly lighter weight was then treated as an intruder.

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Thus suppose that a 20-ounce silver coin was declared equal in value to a worn-out coin

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now weighing 18 ounces.

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What ensued was the inevitable effect of price control.

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The government had arbitrarily undervalued new coins and overvalued old ones.

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New coins were far too cheap and old ones too expensive.

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As a result, the new coins promptly disappeared from circulation, to flow abroad or to remain

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undercover at home, and the old worn coins flooded in.

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This proved discouraging for the state mints, which could not keep coins in circulation

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no matter how many they minted.

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A modern example of the impossibility of keeping undervalued coins in circulation is the disappearance

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The striking effects of Gresham's Law are partly due to a type of intervention adopted by almost every government, legal tender laws.

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At any time in society there is a mass of unpaid debt contracts outstanding,

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representing credit transactions begun in the past and scheduled to be completed in the future.

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It is the responsibility of judicial agencies to enforce these contracts.

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Through laxity, the practice developed of stipulating in the contract that payment will be made in money, without specifying which money.

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Governments then passed legal tender laws, arbitrarily designating what is meant by money,

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even when the creditors and debtors themselves would be willing to settle on something else.

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When the state decrees as money something other than what the parties to a transaction

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have in mind, an intervention has taken place, and the effects of Gresham's law will begin

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to appear. Specifically, assume the existence of the bimetallic system mentioned earlier.

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When contracts were originally made, gold was worth 16 ounces of silver. Now it is worth only 15.

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Yet the legal tender laws specify money as being an equivalent of 16 to 1.

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One.

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As a result of these laws, everyone pays all his debts in the overvalued gold.

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Legal tender laws reinforce the consequences of exchange rate control, and the debtors

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have gained a privilege at the expense of their creditors.

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Usury laws are another form of price control tinkering with the market.

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These laws place legal maxima on interest rates, outlawing any lending transactions

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at a higher rate.

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The amount and proportion of saving and the market rate of interest are basically determined

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by the time preference rates of individuals.

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An effective usury law acts like other maxima to induce a shortage of the service.

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Your time preferences, and therefore the natural interest rate, remain the same.

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The fact that this interest rate is now illegal means that the marginal savers, those whose

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time preferences were highest, now stop saving, and the quantity of saving and investing in

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the economy declines.

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This results in lower productivity and lower standards of living in the future.

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Some people stop saving, others even dis-save and consume their capital.

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The extent to which this happens depends on how effective the usury laws are, that is,

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how far they hamper and distort voluntary market relations.

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Usury laws are designed, at least ostensibly, to help the borrower, particularly the most

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risky borrower who is forced to pay high interest rates to compensate for the added risk.

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Yet it is precisely these borrowers who are most hurt by usury laws.

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If the legal maximum is not too low, there will not be a serious decline in aggregate

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savings.

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But the maximum is below the market rate for the most risky borrowers, where the entrepreneurial

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The financial component of interest is highest, and hence they are deprived of all credit facilities.

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When interest is voluntary, the lender will be able to charge very high interest rates for his loans,

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and thus anyone will be able to borrow if he pays the price.

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Where interest is controlled, many would-be borrowers are deprived of credit altogether.

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In recent years, the myth has developed that usury laws in the Middle Ages were justifiable

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because they dealt with the consumer who had to borrow rather than with productive business.

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On the contrary, it is precisely the risky consumer borrower who most needs the loan,

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who is most injured by the usury laws because he is the one deprived of credit.

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Treasury laws not only diminish savings available for lending and investment, but create an

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artificial shortage of credit, a perpetual condition where there is an excessive demand

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for credit at the legal rate.

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Instead of going to those most able and efficient, the credit will therefore have to be rationed

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by the lenders in some artificial and uneconomic way.

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Although there have rarely been minimum interest rates imposed by government, their effect

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is similar to that of maximum rate control.

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For whenever time preferences and the natural interest rate fall, this condition is reflected

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in increased savings and investment.

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But when the government imposes a legal minimum, the interest rate cannot fall, and the people

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00:24:54.820 --> 00:25:02.100
will not be able to carry through their increased investment, which would bid up factor prices.

223
00:25:02.100 --> 00:25:09.100
Minimum interest rates, therefore, also stunt economic development and impede a rise in

224
00:25:09.100 --> 00:25:16.260
living standards. Marginal borrowers would likewise be forced out of the market and deprived

225
00:25:16.260 --> 00:25:23.740
of credit. To the extent that the market illegally reasserts itself, the interest rate on the

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00:25:23.740 --> 00:25:31.660
alone will be higher to compensate for the extra risk of arrest under usury laws.

227
00:25:31.660 --> 00:25:38.700
To sum up our analysis of the effects of price control, directly the utility of at least

228
00:25:38.700 --> 00:25:44.060
one set of exchangers will be impaired by the control.

229
00:25:44.060 --> 00:25:50.100
Further analysis reveals that the hidden, but just as certain effects, are to injure

230
00:25:50.100 --> 00:25:56.180
are a substantial number of people who had thought they would gain in utility from the

231
00:25:56.180 --> 00:25:58.380
imposed controls.

232
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The announced aim of a maximum price control is to benefit the consumer by ensuring his

233
00:26:05.180 --> 00:26:13.160
supply at a lower price, yet the objective result is to prevent many consumers from acquiring

234
00:26:13.160 --> 00:26:15.100
the good at all.

235
00:26:15.100 --> 00:26:21.900
The announced aim of a minimum price control is to ensure higher prices for the sellers,

236
00:26:21.900 --> 00:26:28.260
yet the effect will be to prevent many sellers from selling any of their surplus.

237
00:26:28.260 --> 00:26:35.260
Furthermore, price controls distort production and the allocation of resources and factors

238
00:26:35.260 --> 00:26:40.940
in the economy, thereby injuring again the bulk of consumers.

239
00:26:40.940 --> 00:26:47.820
And we must not overlook the army of bureaucrats who must be financed by the binary intervention

240
00:26:47.820 --> 00:26:54.520
of taxation and who must administer and enforce the myriad of regulations.

241
00:26:54.520 --> 00:27:01.900
This army in itself withdraws a mass of workers from productive labor and saddles them onto

242
00:27:01.900 --> 00:27:08.160
the backs of the remaining producers, thereby benefiting the bureaucrats but injuring the

243
00:27:08.160 --> 00:27:09.720
rest of the people.

244
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This of course is the consequence of establishing an army of bureaucrats for any interventionary

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00:27:16.900 --> 00:27:19.280
purpose whatever.

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2.

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Product Control Prohibition

248
00:27:24.780 --> 00:27:30.380
Another form of triangular intervention is interference with the nature of production

249
00:27:30.380 --> 00:27:35.140
directly rather than with the terms of exchange.

250
00:27:35.140 --> 00:27:41.460
This occurs when the government prohibits any production or sale of a certain product.

251
00:27:41.460 --> 00:27:48.900
The consequence is injury to all parties concerned, to the consumers, who lose utility because

252
00:27:48.900 --> 00:27:56.220
they cannot purchase the product and satisfy their most urgent wants, and to the producers,

253
00:27:56.220 --> 00:28:03.080
who are prevented from earning a higher remuneration in this field and must therefore be content

254
00:28:03.080 --> 00:28:05.780
with lower earnings elsewhere.

255
00:28:05.780 --> 00:28:13.280
This loss is borne not so much by entrepreneurs who earn from ephemeral adjustments, or by

256
00:28:13.280 --> 00:28:20.600
capitalists who tend to earn a uniform interest rate throughout the economy, as by laborers

257
00:28:20.600 --> 00:28:25.860
and landowners who must accept permanently lower income.

258
00:28:25.860 --> 00:28:32.320
The only ones who benefit from the regulation, then, are the government bureaucrats themselves,

259
00:28:32.320 --> 00:28:38.720
Partly from the tax-created jobs that the regulation creates and perhaps also from the

260
00:28:38.720 --> 00:28:45.720
satisfaction gained from repressing others and wielding coercive power over them.

261
00:28:45.720 --> 00:28:52.960
Whereas with price control one could at least make out a prima facie case that one set of

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00:28:52.960 --> 00:29:01.360
exchangers, producers or consumers is being benefited, no such case can be made out for

263
00:29:01.360 --> 00:29:10.260
Prohibition, where both parties to the exchange, producers and consumers, invariably lose.

264
00:29:10.260 --> 00:29:16.040
In many instances of product prohibition, of course, inevitable pressure develops for

265
00:29:16.040 --> 00:29:22.700
the re-establishment of the market illegally, that is, as a black market.

266
00:29:22.700 --> 00:29:30.140
As in the case of price control, a black market creates difficulties because of its illegality.

267
00:29:30.140 --> 00:29:36.140
The supply of the product will be scarcer, and the price of the product will be higher

268
00:29:36.140 --> 00:29:40.940
to compensate the producers for the risk of violating the law.

269
00:29:40.940 --> 00:29:46.900
And the more strict the prohibition and penalties, the scarcer the product and the higher the

270
00:29:46.900 --> 00:29:48.540
price will be.

271
00:29:48.540 --> 00:29:56.100
Furthermore, the illegality hinders the process of distributing to the consumers information,

272
00:29:56.100 --> 00:30:01.480
For example, by way of advertising, about the existence of the market.

273
00:30:01.480 --> 00:30:07.180
As a result, the organization of the market will be far less efficient, the service to

274
00:30:07.180 --> 00:30:13.740
the consumer will decline in quality, and prices, again, will be higher than under a

275
00:30:13.740 --> 00:30:15.460
legal market.

276
00:30:15.460 --> 00:30:22.700
The premium on secrecy in the black market also militates against large-scale business,

277
00:30:22.700 --> 00:30:28.580
which is likely to be more visible and therefore more vulnerable to law enforcement.

278
00:30:28.580 --> 00:30:35.980
The advantages of efficient large-scale organization are thus lost, injuring the consumer and raising

279
00:30:35.980 --> 00:30:39.520
prices because of the diminished supply.

280
00:30:39.520 --> 00:30:46.040
It is interesting to note that the bulk of organized crime occurs not as invasions of

281
00:31:16.040 --> 00:31:22.880
serve as a form of grant of monopolistic privilege to the black marketeers, since they are likely

282
00:31:22.880 --> 00:31:29.320
to be very different entrepreneurs from those who would succeed in a legal market, for in

283
00:31:29.320 --> 00:31:36.640
the black market rewards accrue to skill in bypassing the law or in bribing government

284
00:31:36.640 --> 00:31:38.440
officials.

285
00:31:38.440 --> 00:31:41.560
There are various types of prohibition.

286
00:31:41.560 --> 00:31:47.500
There is absolute prohibition where the product is completely outlawed.

287
00:31:47.500 --> 00:31:51.020
There are also forms of partial prohibition.

288
00:31:51.020 --> 00:31:57.860
An example is rationing, where consumption beyond a certain amount is prohibited by the

289
00:31:57.860 --> 00:31:58.860
state.

290
00:31:58.860 --> 00:32:04.340
The clear effect of rationing is to injure consumers and lower the standard of living

291
00:32:04.340 --> 00:32:05.880
of everyone.

292
00:32:05.880 --> 00:32:13.080
Since rationing places legal maxima on specific items of consumption, it also distorts the

293
00:32:13.080 --> 00:32:15.700
pattern of consumer spending.

294
00:32:15.700 --> 00:32:23.440
The unrationed or less stringently rationed goods are bought more heavily, whereas consumers

295
00:32:23.440 --> 00:32:27.640
would have preferred to buy more of the rationed goods.

296
00:32:27.640 --> 00:32:34.300
Thus, consumer spending is coercively shifted from the more to the less heavily rationed

297
00:32:34.300 --> 00:32:35.300
and Commodities.

298
00:32:35.300 --> 00:32:42.300
Moreover, the ration tickets introduce a new type of quasi-money, the functions of money

299
00:32:42.300 --> 00:32:47.920
on the market are crippled and atrophied, and confusion reigns.

300
00:32:47.920 --> 00:32:55.220
The main function of money is to be bought by producers and spent by consumers, but under

301
00:32:55.220 --> 00:33:01.340
rationing, consumers are stopped from using their money to the full, and blocked from

302
00:33:01.340 --> 00:33:06.700
from using their dollars to direct and allocate factors of production.

303
00:33:06.700 --> 00:33:13.780
They must also use arbitrarily designated and distributed ration tickets, an inefficient

304
00:33:13.780 --> 00:33:15.980
kind of double money.

305
00:33:15.980 --> 00:33:22.460
The pattern of consumer spending is particularly distorted, and since ration tickets are usually

306
00:33:22.460 --> 00:33:30.140
not transferable, people who do not want brand X are not permitted to exchange these coupons

307
00:33:30.140 --> 00:33:40.700
Priorities and allocations by the government are another type of prohibition, as well as

308
00:33:40.700 --> 00:33:44.060
another jumbling of the price system.

309
00:33:44.060 --> 00:33:49.580
Efficient buyers are prevented from obtaining goods, while inefficient ones find that they

310
00:33:49.580 --> 00:33:52.340
can acquire a plethora.

311
00:33:52.340 --> 00:33:58.980
Efficient firms are no longer allowed to bid away factors or resources from inefficient

312
00:33:58.980 --> 00:33:59.980
firms.

313
00:33:59.980 --> 00:34:06.740
Inefficient firms are, in effect, crippled, and the inefficient ones, subsidized.

314
00:34:06.740 --> 00:34:13.500
Government priorities again basically introduce another form of double money.

315
00:34:13.500 --> 00:34:19.400
Maximum hour laws enforce compulsory idleness and prohibit work.

316
00:34:19.400 --> 00:34:26.000
They are a direct attack on production, injuring the worker who wants to work, reducing his

317
00:34:26.000 --> 00:34:31.200
as Earnings and Lowering the Living Standards of the Entire Society.

318
00:34:31.200 --> 00:34:37.680
Conservation laws, which also prevent production and cause lower living standards, will be

319
00:34:37.680 --> 00:34:40.240
discussed more fully later.

320
00:34:40.240 --> 00:34:47.840
In fact, the monopoly grants of privilege discussed in the next section are also prohibitions,

321
00:34:47.840 --> 00:34:55.840
Since they grant the privilege of production to some by prohibiting production to others.

322
00:34:55.840 --> 00:35:02.840
3. Product Control, Grant of Monopolistic Privilege

323
00:35:02.840 --> 00:35:14.840
Instead of making the product prohibition absolute, the government may prohibit production and sale except by a certain firm or firms.

324
00:35:14.840 --> 00:35:21.580
These firms are then specially privileged by the government to engage in a line of production,

325
00:35:21.580 --> 00:35:27.340
and therefore this type of prohibition is a grant of special privilege.

326
00:35:27.340 --> 00:35:32.400
If the grant is to one person or firm, it is a monopoly grant.

327
00:35:32.400 --> 00:35:39.440
If to several persons or firms, it is a quasi-monopoly or oligopoly grant.

328
00:35:39.440 --> 00:35:43.500
Both types of grant may be called monopolistic.

329
00:35:43.500 --> 00:35:50.200
It is obvious that the grant benefits the monopolist or quasi-monopolist because his competitors

330
00:35:50.200 --> 00:35:54.000
are barred by violence from entering the field.

331
00:35:54.000 --> 00:36:00.160
It is also evident that the would-be competitors are injured and are forced to accept lower

332
00:36:00.160 --> 00:36:05.200
remuneration in less efficient and value-productive fields.

333
00:36:05.200 --> 00:36:10.820
The consumers are likewise injured, for they are prevented from purchasing their products

334
00:36:10.820 --> 00:36:17.660
from competitors whom they would freely prefer, and this injury takes place apart from any

335
00:36:17.660 --> 00:36:21.780
effect of the grant on prices.

336
00:36:21.780 --> 00:36:29.620
Although a monopolistic grant may openly and directly confer a privilege and exclude rivals,

337
00:36:29.620 --> 00:36:36.240
in the present day it is far more likely to be hidden or indirect, cloaked as a type of

338
00:36:36.240 --> 00:36:56.640
The Theory of Monopoly Price is illusory when applied to the free market, but it applies

339
00:36:56.640 --> 00:37:01.880
fully to the case of Monopoly and Quasi-Monopoly grants.

340
00:37:01.880 --> 00:37:08.960
For here we have an identifiable distinction, not the spurious distinction between competitive

341
00:37:08.960 --> 00:37:17.200
and monopoly or monopolistic price, but one between the free market price and the monopoly

342
00:37:17.200 --> 00:37:18.520
price.

343
00:37:18.520 --> 00:37:25.960
For the free market price is conceptually identifiable and definable, whereas the competitive

344
00:37:25.960 --> 00:37:28.000
price is not.

345
00:37:28.000 --> 00:37:34.040
The monopolist, as a receiver of a monopoly privilege, will be able to achieve a monopoly

346
00:37:34.040 --> 00:37:42.520
price for the product if his demand is inelastic or sufficiently less elastic above the free

347
00:37:42.520 --> 00:37:44.400
market price.

348
00:37:44.400 --> 00:37:51.080
On the free market, every demand presented to a firm is elastic above the free market

349
00:37:51.080 --> 00:37:52.080
price.

350
00:37:52.080 --> 00:37:58.760
Otherwise, the firm would have an incentive to raise its price and increase its revenue.

351
00:37:58.760 --> 00:38:05.120
But the grant of monopoly privilege renders the consumer demand less elastic, for the

352
00:38:05.120 --> 00:38:12.720
consumer is deprived of substitute products from other would-be competitors.

353
00:38:12.720 --> 00:38:19.680
Where the demand presented to the firm remains highly elastic, the monopolist will not reap

354
00:38:19.680 --> 00:38:27.040
A Monopoly Gain from His Grant Consumers and competitors will still be injured because

355
00:38:27.040 --> 00:38:33.060
of the prevention of their trade, but the monopolist will not gain, because his price

356
00:38:33.060 --> 00:38:36.920
and income will be no higher than before.

357
00:38:36.920 --> 00:38:44.340
On the other hand, if his demand is now inelastic, then he institutes a monopoly price so as

358
00:38:44.340 --> 00:38:46.960
to maximize his revenue.

359
00:38:46.960 --> 00:38:53.160
As production has to be restricted in order to command the higher price, the restriction

360
00:38:53.160 --> 00:38:59.440
of production and the higher price for the product both injure the consumers.

361
00:38:59.440 --> 00:39:05.640
In contrast to conditions on the free market, we may no longer say that a restriction of

362
00:39:05.640 --> 00:39:12.960
production, such as in a voluntary cartel, benefits the consumers by arriving at the

363
00:39:12.960 --> 00:39:15.940
most value-productive point.

364
00:39:15.940 --> 00:39:21.980
On the contrary, the consumers are injured because their free choice would have resulted

365
00:39:21.980 --> 00:39:24.820
in the free market price.

366
00:39:24.820 --> 00:39:31.020
Because of coercive force applied by the state, they may not purchase goods freely from all

367
00:39:31.020 --> 00:39:33.260
those willing to sell.

368
00:39:33.260 --> 00:39:39.920
In other words, any approach toward the free market equilibrium price and output point

369
00:39:39.920 --> 00:39:47.580
for any product benefits the consumers and thereby benefits the producers as well.

370
00:39:47.580 --> 00:39:54.240
Any movement away from the free market price and output injures the consumers.

371
00:39:54.240 --> 00:40:00.340
The monopoly price resulting from a grant of monopoly privilege leads away from the

372
00:40:00.340 --> 00:40:02.220
free market price.

373
00:40:02.220 --> 00:40:08.900
It lowers output and raises prices beyond what would be established if consumers and

374
00:40:08.900 --> 00:40:22.900
We cannot here use the argument that the restriction of output is voluntary because the consumers make their own demand inelastic.

375
00:40:22.900 --> 00:40:34.900
For the consumers are fully responsible for their demand only on the free market, and only this demand can be treated as an expression of their voluntary choice.

376
00:40:34.900 --> 00:40:51.900
Once the government steps in to prohibit trade and grant privileges, there is no longer wholly voluntary action. Consumers are forced willy-nilly to deal with the monopolist for a certain range of purchases.

377
00:40:51.900 --> 00:41:08.900
All the effects that the monopoly price theorists have mistakenly attributed to voluntary cartels do apply to governmental monopoly grants, production is restricted, and factors misallocated.

378
00:41:08.900 --> 00:41:16.380
It is true that the non-specific factors are again released for production elsewhere, but

379
00:41:16.380 --> 00:41:23.700
now we can say that this production will satisfy the consumers less than under free market

380
00:41:23.700 --> 00:41:24.700
conditions.

381
00:41:24.700 --> 00:41:31.140
Furthermore, the factors will earn less in the other occupations.

382
00:41:31.140 --> 00:41:38.660
There can never be lasting monopoly profits, since profits are ephemeral, and all eventually

383
00:41:38.660 --> 00:41:42.660
monopoly reduced to a uniform interest return.

384
00:41:42.660 --> 00:41:48.280
In the long run, monopoly returns are imputed to some factor.

385
00:41:48.280 --> 00:41:52.340
What is the factor that is being monopolized in this case?

386
00:41:52.340 --> 00:41:57.780
It is obvious that this factor is the right to enter the industry.

387
00:41:57.780 --> 00:42:01.820
In the free market, this right is unlimited to all.

388
00:42:01.820 --> 00:42:08.180
Here, however, the government has granted special privileges of entry and sale, and

389
00:42:08.180 --> 00:42:14.180
And it is these special privileges or rights that are responsible for the extra monopoly

390
00:42:14.180 --> 00:42:17.260
gain from the monopoly price.

391
00:42:17.260 --> 00:42:24.560
The monopolist earns a monopoly gain, therefore, not for owning any productive factor, but

392
00:42:24.560 --> 00:42:28.680
from a special privilege granted by the government.

393
00:42:28.680 --> 00:42:33.420
And this gain does not disappear in the long run, as do profits.

394
00:42:33.420 --> 00:42:41.780
is permanent, so long as the privilege remains, and consumer valuations continue as they are.

395
00:42:41.780 --> 00:42:48.460
Of course, the monopoly gain will tend to be capitalized into the asset value of the

396
00:42:48.460 --> 00:42:54.660
firm, so that subsequent owners, who invest in the firm after the privilege is granted

397
00:42:54.660 --> 00:43:01.020
and the capitalization takes place, will be earning only the generally uniform interest

398
00:43:01.020 --> 00:43:11.060
This whole discussion applies to the quasi-monopolist as well as to the monopolist.

399
00:43:11.060 --> 00:43:17.420
The quasi-monopolist has some competitors, but their number is restricted by the government

400
00:43:17.420 --> 00:43:18.940
privilege.

401
00:43:18.940 --> 00:43:26.380
Each quasi-monopolist will now have a different demand for his product on the market, and

402
00:43:26.380 --> 00:43:30.100
will be affected differently by the privilege.

403
00:43:30.100 --> 00:43:37.840
Those quasi-monopolists for whom demand becomes inelastic will reap a monopoly gain.

404
00:43:37.840 --> 00:43:44.600
Those for whom demand remains highly elastic will reap no gain from the privilege.

405
00:43:44.600 --> 00:43:51.600
Ceteris Paribus, of course, a monopolist is more likely to achieve a monopoly gain than

406
00:43:51.600 --> 00:43:53.640
a quasi-monopolist.

407
00:43:53.640 --> 00:44:00.760
But whether each achieves a gain, and how much, depends purely on the data of each particular

408
00:44:00.760 --> 00:44:02.880
case.

409
00:44:02.880 --> 00:44:10.360
We must note again what we have said before, that even where no monopolist or quasi-monopolist

410
00:44:10.360 --> 00:44:17.000
can achieve a monopoly price, the consumers are still injured, because they are barred

411
00:44:17.000 --> 00:44:23.040
from buying from the most efficient and value-productive producers.

412
00:44:23.040 --> 00:44:28.840
Production is thereby restricted, and the decrease in output, particularly of the most

413
00:44:28.840 --> 00:44:34.540
efficiently produced output, raises the price to consumers.

414
00:44:34.540 --> 00:44:42.160
If the monopolist or quasi-monopolist also achieves a monopoly price, the injury to consumers

415
00:44:42.160 --> 00:44:47.860
and the misallocation of production will be redoubled.

416
00:44:47.860 --> 00:44:55.340
Since outright grants of monopoly or quasi-monopoly would usually be considered baldly injurious

417
00:44:55.340 --> 00:45:01.900
to the public, governments have discovered a variety of methods of granting such privileges

418
00:45:01.900 --> 00:45:08.180
indirectly as well as a variety of arguments to justify these measures.

419
00:45:08.180 --> 00:45:16.540
But they all have the effects common to monopoly or quasi-monopoly grants and monopoly prices

420
00:45:16.540 --> 00:45:19.540
When These Are Obtained

421
00:45:19.540 --> 00:45:27.540
The important types of monopolistic grants, monopoly and quasi-monopoly, are as follows.

422
00:45:27.540 --> 00:45:35.540
1. Governmentally enforced cartels, which every firm in an industry is compelled to join.

423
00:45:35.540 --> 00:45:43.060
2. Virtual cartels imposed by the government, such as the production quotas enforced by

424
00:45:43.060 --> 00:45:46.060
by American Agricultural Policy

425
00:45:46.060 --> 00:45:54.060
3. Licenses, which require meeting government rules before a man or a firm is permitted

426
00:45:54.060 --> 00:46:01.220
to enter a certain line of production, and which also require the payment of a fee, a

427
00:46:01.220 --> 00:46:07.720
payment that serves as a penalty tax on smaller firms with less capital, which are thereby

428
00:46:07.720 --> 00:46:12.060
debarred from competing with larger firms.

429
00:46:12.060 --> 00:46:24.060
4. Quality standards, which prohibit competition by what the government, not the consumers, defines as lower quality products.

430
00:46:24.060 --> 00:46:34.060
5. Tariffs and other measures that levy a penalty tax on competitors outside a given geographical region.

431
00:46:34.060 --> 00:46:49.060
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.

432
00:46:49.060 --> 00:46:58.060
7. Child labor laws, which prohibit the labor competition of workers below a certain age.

433
00:46:58.060 --> 00:47:10.060
8. Minimum wage laws, which, by causing the unemployment of the least value productive workers, remove their competition from the labor markets.

434
00:47:10.060 --> 00:47:21.060
9. Maximum hour laws, which force partial unemployment on those workers who are willing to work longer hours.

435
00:47:21.060 --> 00:47:30.060
10. Compulsory unionism, such as the Wagner-Taft-Hartley Act imposes, causing unemployment among the

436
00:47:30.060 --> 00:47:37.060
workers with the least seniority or the least political influence in their union.

437
00:47:37.060 --> 00:47:44.060
11. Conscription, which forces many young men out of the labor force.

438
00:47:44.060 --> 00:47:45.060
12.

439
00:47:45.060 --> 00:47:51.920
Any sort of governmental penalty on any form of industrial or market organization, such

440
00:47:51.920 --> 00:48:01.300
as antitrust laws, special chain store taxes, corporate income taxes, laws closing businesses

441
00:48:01.300 --> 00:48:08.300
at specific hours, or outlawing pushcart peddlers or door-to-door salesmen.

442
00:48:08.300 --> 00:48:09.900
13.

443
00:48:09.900 --> 00:48:13.900
Conservation Laws, which restrict production by force

444
00:48:13.900 --> 00:48:24.900
14. Patents, where independent later discoverers of a process are debarred from entering a field of production.

445
00:48:24.900 --> 00:48:33.900
Subsidies, of course, penalize competitors not receiving the subsidy, and thus have a decided monopolistic impact.

446
00:48:33.900 --> 00:48:49.540
A. Compulsory Cartels Compulsory cartels are a forcing of all producers

447
00:48:49.540 --> 00:48:55.900
in an industry into one organization or virtual organization.

448
00:48:55.900 --> 00:49:03.060
Instead of being directly barred from an industry, firms are forced to obey governmentally imposed

449
00:49:03.060 --> 00:49:05.800
Quotas of Maximum Output

450
00:49:05.800 --> 00:49:13.200
Such cartels invariably go hand in hand with a governmentally imposed program of minimum

451
00:49:13.200 --> 00:49:15.220
price control.

452
00:49:15.220 --> 00:49:21.300
When the government comes to realize that minimum price control by itself will lead

453
00:49:21.300 --> 00:49:29.300
to unsold surpluses and distress in the industry, it imposes quota restrictions on the output

454
00:49:29.300 --> 00:49:31.040
of producers.

455
00:49:31.040 --> 00:49:37.840
Not only does this action injure consumers by restricting production and lowering output,

456
00:49:37.840 --> 00:49:44.360
the output must also be produced by certain state-designated producers.

457
00:49:44.360 --> 00:49:51.360
Regardless of how the quotas are arrived at, they are arbitrary, and as time passes, they

458
00:49:51.360 --> 00:49:59.480
more and more distort the production structure that attempts to adjust to consumer demands.

459
00:49:59.480 --> 00:50:05.760
Inefficient newcomers are prevented from serving consumers, and inefficient firms are preserved

460
00:50:05.760 --> 00:50:13.520
because they are exempted by their old quotas from the necessity of meeting superior competition.

461
00:50:13.520 --> 00:50:20.720
Compulsory cartels furnish a haven in which the inefficient firms prosper at the expense

462
00:50:20.720 --> 00:50:25.400
of the efficient firms and of the consumers.

463
00:50:25.400 --> 00:50:33.400
B. Licenses. Little attention has been paid to licenses, yet they constitute one of the

464
00:50:33.400 --> 00:50:41.320
most important and steadily growing monopolistic impositions in the current American economy.

465
00:50:41.320 --> 00:50:48.760
Licenses deliberately restrict the supply of labor and of firms in the licensed occupations.

466
00:50:48.760 --> 00:50:55.240
Various rules and requirements are imposed for work in the occupation or for entry into

467
00:50:55.240 --> 00:50:57.520
to a certain line of business.

468
00:50:57.520 --> 00:51:00.460
Those who cannot qualify under the rules

469
00:51:00.460 --> 00:51:02.820
are prevented from entry.

470
00:51:02.820 --> 00:51:06.960
Further, those who cannot meet the price of the license

471
00:51:06.960 --> 00:51:09.020
are barred from entry.

472
00:51:09.020 --> 00:51:12.300
Heavy license fees place great obstacles

473
00:51:12.300 --> 00:51:16.320
in the way of competitors with little initial capital.

474
00:51:16.320 --> 00:51:19.160
Some licenses, such as those required

475
00:51:19.160 --> 00:51:23.120
in the liquor and taxi cab businesses in some states,

476
00:51:23.120 --> 00:51:28.620
impose an absolute limit on the number of firms in the business.

477
00:51:28.620 --> 00:51:37.620
These licenses are negotiable, so that any new firm must buy from an older firm that wants to go out of business.

478
00:51:37.620 --> 00:51:47.120
Rigidity, inefficiency and lack of adaptability to changing consumer desires are all evident in this arrangement.

479
00:51:47.120 --> 00:51:55.120
The market in license rights also demonstrates the burden that licenses place upon new entrants.

480
00:51:55.120 --> 00:52:00.880
Professor Fritz Machlup points out that the governmental administration of licensing is

481
00:52:00.880 --> 00:52:08.120
almost invariably in the hands of members of the trade, and he cogently likens the arrangements

482
00:52:08.120 --> 00:52:13.920
to the self-governing guilds of the Middle Ages.

483
00:52:13.920 --> 00:52:21.120
Requirements of convenience and necessity are required of firms in industries such as railroads,

484
00:52:21.120 --> 00:52:26.020
airlines, etc. regulated by governmental commissions.

485
00:52:26.020 --> 00:52:31.540
These act as licenses, but are generally far more difficult to obtain.

486
00:52:31.540 --> 00:52:37.720
This system excludes would-be entrants from a field, granting a monopolistic privilege

487
00:52:37.720 --> 00:52:39.840
to the firms remaining.

488
00:52:39.840 --> 00:52:45.240
Furthermore, it subjects them to the detailed orders of the Commission.

489
00:52:45.240 --> 00:52:51.760
Since these orders countermand those of the free market, they invariably result in imposed

490
00:52:51.760 --> 00:52:55.480
inefficiency and injury to the consumers.

491
00:52:55.480 --> 00:53:01.820
A glaring example of a Commission's role in banning efficient competitors from an industry

492
00:53:01.820 --> 00:53:08.480
is the Civil Aeronautics Board decision to close up trans-American airlines, despite

493
00:53:08.480 --> 00:53:14.160
A Perfect Safety Record Transamerican had pioneered in rate reductions

494
00:53:14.160 --> 00:53:17.760
for airline service.

495
00:53:17.760 --> 00:53:24.440
Licenses to workers, as distinct from businesses, differ from most other monopolistic grants

496
00:53:24.440 --> 00:53:28.380
which may confer a monopoly price.

497
00:53:28.380 --> 00:53:34.680
For the former license, always confers a restrictionist price.

498
00:53:34.680 --> 00:53:41.480
Unions gain restrictionist wage rates by restricting the labor supply in an occupation.

499
00:53:41.480 --> 00:53:45.160
Here once again the same conditions prevail.

500
00:53:45.160 --> 00:53:48.300
Other factors are forcibly excluded.

501
00:53:48.300 --> 00:53:56.120
And since the monopolist does not own these excluded factors, he is not losing any revenue.

502
00:53:56.120 --> 00:54:03.460
Since a license always restricts entry into a field, it thereby always lowers supply and

503
00:54:03.460 --> 00:54:06.940
and Raises Prices or Wage Rates.

504
00:54:06.940 --> 00:54:13.380
The reason that a monopolistic grant to a business does not always raise prices is that

505
00:54:13.380 --> 00:54:20.020
businesses can always expand or contract their production at will.

506
00:54:20.020 --> 00:54:26.660
Licensing of grocers does not necessarily reduce total supply because it does not preclude

507
00:54:26.660 --> 00:54:33.340
the indefinite enlargement of the licensed grocery firms, which can take up the slack

508
00:54:33.340 --> 00:54:41.580
Created by the exclusion of would-be competitors. But aside from hours worked, restriction of entry

509
00:54:41.580 --> 00:54:50.380
into a labor market must always reduce the total supply of that labor. Hence licenses or other

510
00:54:50.380 --> 00:54:59.180
monopolistic grants to businesses may or may not confer a monopoly price depending on the elasticity

511
00:54:59.180 --> 00:55:07.500
of the Demand, whereas licenses to laborers always confer a higher restrictionist price

512
00:55:07.500 --> 00:55:10.060
on the licensees.

513
00:55:10.060 --> 00:55:15.400
C. Standards of Quality and Safety.

514
00:55:15.400 --> 00:55:21.580
One of the favorite arguments for licensing laws and other types of quality standards

515
00:55:21.580 --> 00:55:28.620
is that governments must protect consumers by ensuring that workers and businesses sell

516
00:55:28.620 --> 00:55:39.220
The answer, of course, is that quality is a highly elastic and relative term, and is

517
00:55:39.220 --> 00:55:44.820
decided by the consumers in their free actions in the marketplace.

518
00:55:44.820 --> 00:55:51.500
The consumers decide according to their own tastes and interests, and particularly according

519
00:55:51.500 --> 00:55:55.260
to the price they wish to pay for the service.

520
00:55:55.260 --> 00:56:00.700
It may very well be, for example, that a certain number of years' attendance at a certain

521
00:56:00.700 --> 00:56:07.020
type of school turns out the best quality of doctors, although it is difficult to see

522
00:56:07.020 --> 00:56:13.760
why the government must guard the public from unlicensed cold-cream demonstrators or from

523
00:56:13.760 --> 00:56:19.860
plumbers without a college degree or with less than 10 years' experience.

524
00:56:19.860 --> 00:56:26.000
But by prohibiting the practice of medicine by people who do not meet these requirements,

525
00:56:26.000 --> 00:56:32.840
the government is injuring consumers who would buy the services of the outlawed competitors,

526
00:56:32.840 --> 00:56:41.080
is protecting qualified but less-value productive doctors from outside competition, and also

527
00:56:41.080 --> 00:56:45.900
grants restrictionist prices to the remaining doctors.

528
00:56:45.900 --> 00:56:52.140
It is hardly remarkable that we hear continual complaints about a shortage of doctors and

529
00:56:52.140 --> 00:56:59.740
teachers, but rarely hear complaints of shortages in unlicensed occupations.

530
00:56:59.740 --> 00:57:05.940
Consumers are prevented from choosing lower quality treatment of minor ills in exchange

531
00:57:05.940 --> 00:57:12.220
for a lower price, and are also prevented from patronizing doctors who have a different

532
00:57:12.220 --> 00:57:19.120
Theory of Medicine from that sanctioned by the state-approved medical schools.

533
00:57:19.120 --> 00:57:25.160
How much these requirements are designed to protect the health of the public, and how

534
00:57:25.160 --> 00:57:32.300
much to restrict competition, may be gauged from the fact that giving medical advice free

535
00:57:32.300 --> 00:57:37.260
without a license is rarely a legal offense.

536
00:57:37.260 --> 00:57:42.500
Only the sale of medical advice requires a license.

537
00:57:42.500 --> 00:57:49.320
Since someone may be injured as much, if not more, by free medical advice than by purchased

538
00:57:49.320 --> 00:57:56.120
advice, the major purpose of the regulation is clearly to restrict competition rather

539
00:57:56.120 --> 00:57:59.600
than to safeguard the public.

540
00:57:59.600 --> 00:58:05.000
Other quality standards in production have an even more injurious effect.

541
00:58:05.000 --> 00:58:13.360
They impose governmental definitions of products and require businesses to hew to the specifications

542
00:58:13.360 --> 00:58:16.280
laid down by these definitions.

543
00:58:16.280 --> 00:58:22.460
Thus, the government defines bread as being of a certain composition.

544
00:58:22.460 --> 00:58:30.680
This is supposed to be a safeguard against adulteration, but in fact, it prohibits improvement.

545
00:58:30.680 --> 00:58:36.920
If the government defines a product in a certain way, it prohibits change.

546
00:58:36.920 --> 00:58:44.520
A change, to be accepted by consumers, has to be an improvement, either absolutely or

547
00:58:44.520 --> 00:58:47.120
in the form of a lower price.

548
00:58:47.120 --> 00:58:53.640
Yet it may take a long time, if not forever, to persuade the government bureaucracy to

549
00:58:53.640 --> 00:58:55.940
change the requirements.

550
00:58:55.940 --> 00:59:03.180
In the meantime, competition is injured and technological improvements are blocked.

551
00:59:03.180 --> 00:59:10.300
Quality standards, by shifting decisions about quality from the consumers to arbitrary government

552
00:59:10.300 --> 00:59:17.760
boards, impose rigidities and monopolization on the economic system.

553
00:59:17.760 --> 00:59:24.060
In the free economy, there would be ample means to obtain redress for direct injuries

554
00:59:24.060 --> 00:59:26.060
The Theory of Money and Credit

555
00:59:54.060 --> 00:59:58.840
He is selling him food while actually selling straw.

556
00:59:58.840 --> 01:00:06.460
This is punishable in the courts under libertarian law, that is, the legal code of the free society

557
01:00:06.460 --> 01:00:11.500
that would prohibit all invasions of persons and property.

558
01:00:11.500 --> 01:00:18.660
The loss of the product and the price plus suitable damages paid to the victim, not to

559
01:00:18.660 --> 01:00:23.020
the state, would be included in the punishment of fraud.

560
01:00:23.020 --> 01:00:28.020
No administrator is needed to prevent non-fraudulent sales.

561
01:00:28.020 --> 01:00:35.180
If a man simply sells what he calls bread, it must meet the common definition of bread

562
01:00:35.180 --> 01:00:40.420
held by consumers, and not some arbitrary specification.

563
01:00:40.420 --> 01:00:47.860
However, if he specifies the composition on the loaf, he is liable for prosecution if

564
01:00:47.860 --> 01:00:49.600
he is lying.

565
01:00:49.600 --> 01:00:57.080
It must be emphasized that the crime is not lying per se, which is a moral problem, not

566
01:00:57.080 --> 01:01:04.400
under the province of a free market defense agency, but breaching a contract, taking someone

567
01:01:04.400 --> 01:01:11.160
else's property under false pretenses and therefore being guilty of fraud.

568
01:01:11.160 --> 01:01:17.000
If on the other hand the adulterated product injures the health of the buyer, such as by

569
01:01:17.000 --> 01:01:24.000
By an inserted poison, the seller is further liable for prosecution for injuring and assaulting

570
01:01:24.000 --> 01:01:27.440
the person of the buyer.

571
01:01:27.440 --> 01:01:33.460
Another type of quality control is the alleged protection of investors.

572
01:01:33.460 --> 01:01:40.820
SEC regulations force new companies selling stock, for example, to comply with certain

573
01:01:40.820 --> 01:01:44.440
rules, issue brochures, etc.

574
01:01:44.440 --> 01:01:51.640
The net effect is to hamper new and especially small firms and restrict them in acquiring

575
01:01:51.640 --> 01:01:58.800
capital, thereby conferring a monopolistic privilege upon existing firms.

576
01:01:58.800 --> 01:02:04.240
Investors are prohibited from investing in particularly risky enterprises.

577
01:02:04.240 --> 01:02:12.920
SEC regulations, blue sky laws, etc. thereby restrict the entry of new firms and prevent

578
01:02:12.920 --> 01:02:18.120
Investment in Risky but Possibly Successful Ventures.

579
01:02:18.120 --> 01:02:24.560
Once again, efficiency in business and service to the consumer are hampered.

580
01:02:24.560 --> 01:02:31.660
Some people who generally adhere to the free market support the SEC and similar regulations

581
01:02:31.660 --> 01:02:37.360
on the ground that they raise the moral tone of competition.

582
01:02:37.360 --> 01:02:45.040
Say they restrict competition, but they cannot be said to raise the moral tone until morality

583
01:02:45.040 --> 01:02:47.660
is successfully defined.

584
01:02:47.660 --> 01:02:55.240
How can morality and production be defined except as efficient service to the consumer?

585
01:02:55.240 --> 01:03:03.580
And how can anyone be moral if he is prevented by force from acting otherwise?

586
01:03:03.580 --> 01:03:08.040
Safety codes are another common type of quality standard.

587
01:03:08.040 --> 01:03:13.380
They prescribe the details of production and outlaw differences.

588
01:03:13.380 --> 01:03:18.780
The free market method of dealing, say, with the collapse of a building killing several

589
01:03:18.780 --> 01:03:24.180
persons is to send the owner of the building to jail for manslaughter.

590
01:03:24.180 --> 01:03:32.020
But the free market can countenance no arbitrary safety code promulgated in advance of any

591
01:03:32.020 --> 01:03:33.300
crime.

592
01:03:33.300 --> 01:03:39.700
The current system does not treat the building owner as a virtual murderer should a collapse

593
01:03:39.700 --> 01:03:40.700
occur.

594
01:03:40.700 --> 01:03:45.500
Instead, he merely pays a sum of monetary damages.

595
01:03:45.500 --> 01:03:52.220
In that way, invasion of person goes relatively unpunished and undeterred.

596
01:03:52.220 --> 01:03:59.260
On the other hand, administrative codes proliferate and their general effect is to prevent major

597
01:03:59.260 --> 01:04:20.660
The Building Industry is so constituted that many laborers are quasi-independent entrepreneurs.

598
01:04:20.660 --> 01:04:26.140
Safety codes, therefore, compound the restrictionism of building unions.

599
01:04:26.140 --> 01:04:32.900
Evasion of safety codes through bribery then permits the actual aggressor, the builder

600
01:04:32.900 --> 01:04:40.380
whose property injures someone, to continue unpunished and go scot-free.

601
01:04:40.380 --> 01:04:46.820
It might be objected that free market defense agencies must wait until after people are

602
01:04:46.820 --> 01:04:51.740
injured to punish, rather than prevent crime.

603
01:04:51.740 --> 01:04:57.260
It is true that on the free market only overt acts can be punished.

604
01:04:57.260 --> 01:05:03.780
There is no attempt by anyone to tyrannize over anyone else on the ground that some future

605
01:05:03.780 --> 01:05:07.980
crime might possibly be prevented thereby.

606
01:05:07.980 --> 01:05:15.340
On the prevention theory, any sort of invasion of personal freedom can be and in fact must

607
01:05:15.340 --> 01:05:17.420
be justified.

608
01:05:17.420 --> 01:05:24.960
It is certainly a ludicrous procedure to attempt to prevent a few future invasions by committing

609
01:05:24.960 --> 01:05:28.600
permanent invasions against everyone.

610
01:05:28.600 --> 01:05:35.380
We might add here that on the purely free market even the clear and present danger criterion

611
01:05:35.380 --> 01:05:42.940
would be far too lax and subjective a definition for a punishable deed.

612
01:05:42.940 --> 01:05:47.940
Money regulations are also imposed on labor contracts.

613
01:05:47.940 --> 01:05:54.580
Workers and employers are prevented from agreeing on terms of hire unless certain governmental

614
01:05:54.580 --> 01:05:56.980
rules are obeyed.

615
01:05:56.980 --> 01:06:04.180
The result is a loss imposed on workers and employers who are denied their freedom to

616
01:06:04.180 --> 01:06:09.860
contract, and who must turn to other, less remunerative employments.

617
01:06:09.860 --> 01:06:16.060
Factors are therefore distorted and misallocated in relation to both the maximum satisfaction

618
01:06:16.060 --> 01:06:21.500
of the consumers and maximum return to factors.

619
01:06:21.500 --> 01:06:26.360
Industry is rendered less productive and flexible.

620
01:06:26.360 --> 01:06:34.220
Another use of safety regulations is to prevent geographic competition, that is, to keep consumers

621
01:06:34.220 --> 01:06:41.100
from Buying Goods from Efficient Producers Located in Other Geographical Areas

622
01:06:41.100 --> 01:06:48.220
Analytically there is little distinction between competition in general and in location, since

623
01:06:48.220 --> 01:06:56.220
location is simply one of the many advantages or disadvantages that competing firms possess.

624
01:06:56.220 --> 01:07:03.700
Thus, state governments have organized compulsory milk cartels, which set minimum prices and

625
01:07:03.700 --> 01:07:10.980
and Restrict Output and Absolute Embargos are levied on out-of-state milk imports under

626
01:07:10.980 --> 01:07:13.500
the guise of safety.

627
01:07:13.500 --> 01:07:20.060
The effect, of course, is to cut off competition and permit monopoly pricing.

628
01:07:20.060 --> 01:07:27.140
Furthermore, safety requirements that go far beyond those imposed on local firms are often

629
01:07:27.140 --> 01:07:31.460
exacted on out-of-state products.

630
01:07:31.460 --> 01:07:41.900
D. Tariffs. Tariffs and various forms of import quotas prohibit, partially or totally, geographical

631
01:07:41.900 --> 01:07:49.820
competition for various products. Domestic firms are granted a quasi-monopoly, and, generally,

632
01:07:49.820 --> 01:07:57.100
a monopoly price. Tariffs injure the consumers within the protected area, who are prevented

633
01:07:57.100 --> 01:08:02.180
from purchasing from more efficient competitors at a lower price.

634
01:08:02.180 --> 01:08:08.160
They also injure the more efficient foreign firms and the consumers of all areas, who

635
01:08:08.160 --> 01:08:13.060
are deprived of the advantages of geographic specialization.

636
01:08:13.060 --> 01:08:19.680
In a free market, the best resources will tend to be allocated to their most value-productive

637
01:08:19.680 --> 01:08:21.180
locations.

638
01:08:21.180 --> 01:08:28.700
Blocking inter-regional trade will force factors to obtain lower remuneration at less efficient

639
01:08:28.700 --> 01:08:32.260
and less value-productive tasks.

640
01:08:32.260 --> 01:08:39.360
Economists have devoted a great deal of attention to the theory of international trade, attention

641
01:08:39.360 --> 01:08:45.380
far beyond its analytic importance, for on the free market there would be no separate

642
01:08:45.380 --> 01:08:51.860
Theory of International Trade at all, and the free market is the locus of the fundamental

643
01:08:51.860 --> 01:08:53.900
analytic problems.

644
01:08:53.900 --> 01:09:00.700
Analysis of interventionary situations consists simply in comparing their effects to what

645
01:09:00.700 --> 01:09:04.260
would have occurred on the free market.

646
01:09:04.260 --> 01:09:11.540
Nations may be important politically and culturally, but economically they appear only as a consequence

647
01:09:11.540 --> 01:09:28.880
Tariffs have inspired a profusion of economic speculation and argument.

648
01:09:28.880 --> 01:09:32.760
The arguments for tariffs have one thing in common.

649
01:09:32.760 --> 01:09:39.300
They all attempt to prove that the consumers of the protected area are not exploited by

650
01:09:39.300 --> 01:09:40.840
the tariff.

651
01:09:40.840 --> 01:09:43.280
These attempts are all in vain.

652
01:09:43.280 --> 01:09:45.320
There are many arguments.

653
01:09:45.320 --> 01:09:50.880
Typical are worries about the continuance of an unfavorable balance of trade.

654
01:09:50.880 --> 01:09:57.540
But every individual decides on his purchases and therefore determines whether his balance

655
01:09:57.540 --> 01:10:02.100
should be favorable or unfavorable.

656
01:10:02.100 --> 01:10:07.940
Unfavorable is a misleading term, because any purchase is the action most favorable

657
01:10:07.940 --> 01:10:17.240
The same is therefore true for the consolidated balance of a region or a country.

658
01:10:17.240 --> 01:10:25.540
There can be no unfavorable balance of trade from a region unless the traders so will it,

659
01:10:25.540 --> 01:10:32.740
either by selling their gold reserve or by borrowing from others, the loans being voluntarily

660
01:10:32.740 --> 01:10:35.900
granted by creditors.

661
01:10:35.900 --> 01:10:42.780
The absurdity of the pro-tariff arguments can be seen when we carry the idea of a tariff

662
01:10:42.780 --> 01:10:50.300
to its logical conclusion, let us say, the case of two individuals, Jones and Smith.

663
01:10:50.300 --> 01:10:57.020
This is a valid use of the reductio ad absurdum because the same qualitative effects take

664
01:10:57.020 --> 01:11:03.960
place when a tariff is levied on a whole nation as when it is levied on one or two people.

665
01:11:03.960 --> 01:11:07.400
The difference is merely one of degree.

666
01:11:07.400 --> 01:11:13.340
The impact of a tariff is clearly greater the smaller the geographic area of traders

667
01:11:13.340 --> 01:11:14.600
it covers.

668
01:11:14.600 --> 01:11:20.760
A tariff protecting the whole world would be meaningless, at least until other planets

669
01:11:20.760 --> 01:11:23.800
are brought within our trading market.

670
01:11:23.800 --> 01:11:30.040
Suppose that Jones has a farm, Jones Acres, and Smith works for him.

671
01:11:30.040 --> 01:11:37.720
Having become steeped in pro-tariff ideas, Jones exhorts Smith to buy Jones Acres, keep

672
01:11:37.720 --> 01:11:44.180
the money in Jones Acres, don't be exploited by the flood of products from the cheap labor

673
01:11:44.180 --> 01:11:51.400
of foreigners outside Jones Acres, and similar maxims become the watchword of the two men.

674
01:11:51.400 --> 01:11:58.760
To make sure that their aim is accomplished, Jones levies a 1000% tariff on the imports

675
01:11:58.760 --> 01:12:05.840
of All Goods and Services from Abroad, that is, from outside the farm.

676
01:12:05.840 --> 01:12:12.920
As a result, Jones and Smith see their leisure, or problems of unemployment, disappear as

677
01:12:12.920 --> 01:12:20.360
they work from dawn to dusk trying to eke out the production of all the goods they desire.

678
01:12:20.360 --> 01:12:26.460
Many they cannot raise at all, others they can given centuries of effort.

679
01:12:26.460 --> 01:12:32.460
It is true that they reap the promise of the protectionists' self-sufficiency, although

680
01:12:32.460 --> 01:12:38.700
the sufficiency is bare subsistence instead of a comfortable standard of living.

681
01:12:38.700 --> 01:12:45.860
Money is kept at home and they can pay each other very high nominal wages and prices,

682
01:12:45.860 --> 01:12:53.900
but the men find that the real value of their wages, in terms of goods, plummets drastically.

683
01:12:53.900 --> 01:13:00.100
Truly we are now back in the situation of the isolated or barter economies of Crusoe

684
01:13:00.100 --> 01:13:06.460
and Friday, and that is effectively what the tariff principle amounts to.

685
01:13:06.460 --> 01:13:12.580
This principle is an attack on the market, and its logical goal is the self-sufficiency

686
01:13:12.580 --> 01:13:15.220
of individual producers.

687
01:13:15.220 --> 01:13:22.060
It is a goal that, if realized, would spell poverty for all, and death for most of the

688
01:13:22.060 --> 01:13:28.820
the Present World Population, it would be a regression from civilization to barbarism.

689
01:13:28.820 --> 01:13:36.540
A mild tariff over a wider area is perhaps only a push in that direction, but it is a

690
01:13:36.540 --> 01:13:44.100
push, and the arguments used to justify the tariff apply equally well to a return to the

691
01:13:44.100 --> 01:13:46.940
self-sufficiency of the jungle.

692
01:13:46.940 --> 01:13:52.900
The tariff advocates will not wish to push the argument to this length, since all parties

693
01:13:52.900 --> 01:13:55.780
clearly lose so drastically.

694
01:13:55.780 --> 01:14:02.380
With a milder tariff, on the other hand, the tariff-protected oligopolists may gain more

695
01:14:02.380 --> 01:14:09.740
in the short run from exploiting the domestic consumers than they lose from being consumers

696
01:14:09.740 --> 01:14:11.740
themselves.

697
01:14:11.740 --> 01:14:18.080
One of the keenest parts of Henry George's analysis of the protective tariff is his discussion

698
01:14:18.080 --> 01:14:21.540
of the term protection.

699
01:14:21.540 --> 01:14:24.100
Protection implies prevention.

700
01:14:24.100 --> 01:14:28.120
What is it that protection by tariff prevents?

701
01:14:28.120 --> 01:14:29.400
It is trade.

702
01:14:29.400 --> 01:14:37.100
But trade, from which protection essays to preserve and defend us, is not, like flood,

703
01:14:37.100 --> 01:14:43.140
Earthquake or Tornado, something that comes without human agency.

704
01:14:43.140 --> 01:14:45.900
Trade implies human action.

705
01:14:45.900 --> 01:14:53.260
There can be no need of preserving from or defending against trade unless there are men

706
01:14:53.260 --> 01:14:57.260
who want to trade and try to trade.

707
01:14:57.260 --> 01:15:03.860
Who then are the men against whose efforts to trade, protection, preserves and defends

708
01:15:03.860 --> 01:15:04.860
us?

709
01:15:04.860 --> 01:15:12.400
The desire of one party, however strong it may be, cannot of itself bring about trade.

710
01:15:12.400 --> 01:15:20.040
To every trade there must be two parties who actually desire to trade, and whose actions

711
01:15:20.040 --> 01:15:21.880
are reciprocal.

712
01:15:21.880 --> 01:15:28.320
No one can buy unless he finds someone willing to sell, and no one can sell unless there

713
01:15:28.320 --> 01:15:31.440
is some other one willing to buy.

714
01:15:31.440 --> 01:15:37.900
If Americans did not want to buy foreign goods, foreign goods could not be sold here, even

715
01:15:37.900 --> 01:15:40.440
if there were no tariff.

716
01:15:40.440 --> 01:15:47.760
The efficient cause of the trade which our tariff aims to prevent is the desire of Americans

717
01:15:47.760 --> 01:15:54.140
to buy foreign goods, not the desire of foreign producers to sell them.

718
01:15:54.140 --> 01:15:59.200
It is not from foreigners that protection preserves and defends us.

719
01:15:59.200 --> 01:16:07.520
is from ourselves. Ironically, the long-run exploitative possibilities of the protective

720
01:16:07.520 --> 01:16:14.480
tariff are far less than those that arise from other forms of monopoly grant, for only

721
01:16:14.480 --> 01:16:23.200
firms within an area are protected, yet anyone is permitted to establish a firm there, even

722
01:16:23.200 --> 01:16:44.200
and Foreigners. As a result, other firms, from within and without the area, will flock into the protected industry and the protected area, until finally the monopoly gain disappears, although misallocation of production and injury to consumers remain.

723
01:16:44.200 --> 01:16:55.200
In the long run, therefore, a tariff per se does not establish a lasting benefit even for the immediate beneficiaries.

724
01:16:55.200 --> 01:17:06.200
Many writers and economists otherwise in favor of free trade have conceded the validity of the infant industry argument for a protective tariff.

725
01:17:06.200 --> 01:17:07.200
and the Tariff.

726
01:17:07.200 --> 01:17:12.760
Few free traders, in fact, have challenged the argument beyond warning that the tariff

727
01:17:12.760 --> 01:17:18.480
might be continued beyond the stage of infancy of the industry.

728
01:17:18.480 --> 01:17:24.760
This reply, in effect, concedes the validity of the infant industry argument.

729
01:17:24.760 --> 01:17:31.600
Aside from the utterly false and misleading biological analogy, which compares a newly

730
01:17:31.600 --> 01:17:38.320
From a newly established industry to a helpless newborn baby who needs protection, the substance

731
01:17:38.320 --> 01:17:42.140
of the argument has been stated by Frank Taussig.

732
01:17:42.140 --> 01:17:48.180
The argument is that while the price of the protected article is temporarily raised by

733
01:17:48.180 --> 01:17:52.040
the duty, eventually it is lowered.

734
01:17:52.040 --> 01:17:56.360
Competition sets in and brings a lower price in the end.

735
01:17:56.360 --> 01:18:01.780
This reduction in domestic price comes only with the lapse of time.

736
01:18:01.780 --> 01:18:08.340
At the outset, the domestic producer has difficulties and cannot meet the foreign competition.

737
01:18:08.340 --> 01:18:14.500
In the end, he learns how to produce to best advantage and then can bring the article to

738
01:18:14.500 --> 01:18:19.860
market as cheaply as the foreigner, even more cheaply.

739
01:18:19.860 --> 01:18:26.860
Thus older competitors are alleged to possess historically acquired skill and capital that

740
01:18:26.860 --> 01:18:31.060
enable them to out-compete any new rivals.

741
01:18:31.060 --> 01:18:37.020
Wise protection of the government granted to the new firms, therefore, will in the long

742
01:18:37.020 --> 01:18:41.980
run promote, rather than hinder, competition.

743
01:18:41.980 --> 01:18:48.620
The infant industry argument reverses the true conclusion from a correct premise.

744
01:18:48.620 --> 01:18:55.660
The fact that capital has already been sunk in older locations does, it is true, give

745
01:18:55.660 --> 01:19:02.940
the older firms an advantage, even if today, in the light of present knowledge and consumer

746
01:19:02.940 --> 01:19:07.460
wants, the investments would have been made in the new locations.

747
01:19:07.460 --> 01:19:14.220
But the point is that we must always work with a given situation, with the capital handed

748
01:19:14.220 --> 01:19:18.180
down to us by the investment of our ancestors.

749
01:19:18.180 --> 01:19:24.080
The fact that our ancestors made mistakes from the point of view of our present superior

750
01:19:24.080 --> 01:19:30.640
knowledge is unfortunate, but we must always do the best with what we have.

751
01:19:30.640 --> 01:19:35.640
We do not and never can begin investing from scratch.

752
01:19:35.640 --> 01:19:42.600
Indeed, if we did, we should be in the situation of Robinson Crusoe, facing land again with

753
01:19:42.600 --> 01:19:46.600
our bare hands and no inherited equipment.

754
01:19:46.600 --> 01:19:53.600
Therefore, we must make use of the advantages given us by the sunk capital of the past.

755
01:19:53.600 --> 01:20:00.680
To subsidize new plants would be to injure consumers by depriving them of the advantages

756
01:20:00.680 --> 01:20:03.720
of historically given capital.

757
01:20:03.720 --> 01:20:10.840
In fact, if long-run prospects in the new industry are so promising, why does not private

758
01:20:10.840 --> 01:20:18.200
Enterprise, ever on the outlook for a profitable investment opportunity, enter the new field.

759
01:20:18.200 --> 01:20:25.080
Only because entrepreneurs realize that such investment would be uneconomic.

760
01:20:25.080 --> 01:20:31.640
That is, it would waste capital, land and labor that could otherwise be invested to

761
01:20:31.640 --> 01:20:36.120
satisfy more urgent desires of the consumers.

762
01:20:36.120 --> 01:20:42.880
As Mises says, the truth is that the establishment of an infant industry is advantageous from

763
01:20:42.880 --> 01:20:50.960
the economic point of view only if the superiority of the new location is so momentous that it

764
01:20:50.960 --> 01:20:58.800
outweighs the disadvantages resulting from abandonment of non-convertible and non-transferrable

765
01:20:58.800 --> 01:21:04.080
capital goods invested in the older established plants.

766
01:21:04.080 --> 01:21:10.520
If this is the case, the new plants will be able to compete successfully with the old ones

767
01:21:10.520 --> 01:21:14.080
without any aid given by the government.

768
01:21:14.080 --> 01:21:21.400
If it is not the case, the protection granted to them is wasteful, even if it is only temporary

769
01:21:21.400 --> 01:21:26.520
and enables the new industry to hold its own at a later period.

770
01:21:26.520 --> 01:21:33.200
The tariff amounts virtually to a subsidy, which the consumers are forced to pay as a

771
01:21:33.200 --> 01:21:39.680
is a compensation for the employment of scarce factors of production for the replacement

772
01:21:39.680 --> 01:21:47.160
of still-utilizable capital goods to be scrapped and the withholding of these scarce factors

773
01:21:47.160 --> 01:21:54.460
from other employments in which they could render services valued higher by the consumers.

774
01:21:54.460 --> 01:22:01.440
In the absence of tariffs, the migration of industries to better locations is postponed

775
01:22:01.440 --> 01:22:08.800
until the capital goods invested in the old plants are worn out or become obsolete by

776
01:22:08.800 --> 01:22:15.680
technological improvements which are so momentous as to necessitate their replacement by new

777
01:22:15.680 --> 01:22:23.320
equipment. Logically, the infant industry argument must be applied to interlocal and

778
01:22:23.320 --> 01:22:30.720
interregional trade as well as international. Failure to realize this is one of the reasons

779
01:22:30.720 --> 01:22:33.520
for the Persistence of the Argument

780
01:22:33.520 --> 01:22:49.320
Logically extended, in fact, the argument would have to imply that it is impossible for any new firm to exist and grow against the competition of older firms wherever their locations.

781
01:22:49.320 --> 01:22:59.720
New firms, after all, have their own peculiar advantage to offset that of existing sunken capital possessed by the old firms.

782
01:22:59.720 --> 01:23:07.160
New firms can begin afresh with the latest and most productive equipment as well as on the best

783
01:23:07.160 --> 01:23:14.520
locations. The advantages and disadvantages of a new firm must be weighed against each other

784
01:23:14.520 --> 01:23:22.680
by entrepreneurs in each case to discover the most profitable and therefore the most serviceable

785
01:23:22.680 --> 01:23:33.800
Course, e. Immigration Restrictions. Laborers may also ask for geographical grants of oligopoly

786
01:23:33.800 --> 01:23:40.520
in the form of immigration restrictions. In the free market, the inexorable trend

787
01:23:40.520 --> 01:23:47.480
is to equalize wage rates for the same value-productive work all over the earth. This

788
01:23:47.480 --> 01:24:02.480
This trend is dependent on two modes of adjustment, businesses flocking from high-wage to low-wage areas, and workers flowing from low-wage to high-wage areas.

789
01:24:02.480 --> 01:24:10.480
Immigration restrictions are an attempt to gain restrictionist wage rates for the inhabitants of an area.

790
01:24:10.480 --> 01:24:16.000
They constitute a restriction rather than a monopoly, because a.

791
01:24:16.000 --> 01:24:22.220
In the labor force, each worker owns himself, and therefore the restrictionists have no

792
01:24:22.220 --> 01:24:26.440
control over the whole of the supply of labor.

793
01:24:26.440 --> 01:24:27.440
And b.

794
01:24:27.440 --> 01:24:34.080
The supply of labor is large in relation to the possible variability in the hours of an

795
01:24:34.080 --> 01:24:41.800
An individual worker, that is, a worker cannot, like a monopolist, take advantage of the restriction

796
01:24:41.800 --> 01:24:49.000
by increasing his output to take up the slack, and hence obtaining a higher price is not

797
01:24:49.000 --> 01:24:52.640
determined by the elasticity of the demand.

798
01:24:52.640 --> 01:24:59.520
A higher price is obtained, in any case, by the restriction of the supply of labor.

799
01:24:59.520 --> 01:25:04.040
There is a connexity throughout the entire labor market.

800
01:25:04.040 --> 01:25:09.740
Labor markets are linked with each other in different occupations, and the general wage

801
01:25:09.740 --> 01:25:16.760
rate, in contrast to the rate in specific industries, is determined by the total supply

802
01:25:16.760 --> 01:25:23.920
of all labor, as compared with the various demands for different types of labor in different

803
01:25:23.920 --> 01:25:24.920
industries.

804
01:25:24.920 --> 01:25:32.440
A reduced total supply of labor in an area will thus tend to increase wage rates all

805
01:25:32.440 --> 01:25:34.680
around.

806
01:25:34.680 --> 01:25:41.080
Immigration restrictions, therefore, may earn restrictionist wage rates for all people in

807
01:25:41.080 --> 01:25:47.260
the restricted area, although clearly the greatest relative gainers will be those who

808
01:25:47.260 --> 01:25:53.680
would have directly competed in the labor market with the potential immigrants.

809
01:25:53.680 --> 01:26:00.660
They gain at the expense of the excluded people, who are forced to accept lower-paying jobs

810
01:26:00.660 --> 01:26:30.660
The Theory of Money and Credit

811
01:26:30.660 --> 01:26:56.660
The high-wage areas won their position through a greater investment of capital per head than the other areas, and now the workers in that area try to resist the lowering of wage rates that would stem from an influx of workers from abroad.

812
01:26:56.660 --> 01:27:02.660
Immigration barriers confer gains at the expense of foreign workers.

813
01:27:02.660 --> 01:27:06.660
Few residents of the area trouble themselves about that.

814
01:27:06.660 --> 01:27:12.660
It is instructive to study the arguments of those internationalist congressmen

815
01:27:12.660 --> 01:27:16.660
who advocate changes in American immigration barriers.

816
01:27:16.660 --> 01:27:23.660
The changes proposed do not even remotely suggest the removal of these barriers.

817
01:27:23.660 --> 01:27:39.660
The barriers raise other problems, however. The process of equalizing wage rates, though hobbled, will continue in the form of an export of capital investment to foreign, low-wage countries.

818
01:27:39.660 --> 01:27:49.660
Insistence on high wage rates at home creates more and more incentive for domestic capitalists to invest abroad.

819
01:27:49.660 --> 01:27:56.780
In the end, the equalization process will be affected anyway, except that the location of

820
01:27:56.780 --> 01:28:03.900
resources will be completely distorted. Too many workers and too much capital will be stationed

821
01:28:03.900 --> 01:28:10.300
abroad, and too little at home, in relation to the satisfaction of the world's consumers.

822
01:28:11.020 --> 01:28:18.860
Secondly, the domestic citizens may very well lose more from immigration barriers as consumers

823
01:28:18.860 --> 01:28:21.660
than they gain as workers.

824
01:28:21.660 --> 01:28:24.620
For immigration barriers, a.

825
01:28:24.620 --> 01:28:31.140
Impose shackles on the international division of labor, the most efficient location of production

826
01:28:31.140 --> 01:28:33.900
and population, etc.

827
01:28:33.900 --> 01:28:34.900
And b.

828
01:28:34.900 --> 01:28:41.460
The population in the home country may well be below the optimum population for the home

829
01:28:41.460 --> 01:28:42.760
area.

830
01:28:42.760 --> 01:28:49.680
An inflow of population might well stimulate greater mass production and specialization,

831
01:28:49.680 --> 01:28:53.680
and thereby raise the real income per capita.

832
01:28:53.680 --> 01:29:00.360
In the long run, of course, the equalization would still take place, but perhaps at a higher

833
01:29:00.360 --> 01:29:06.460
level, especially if the poorer countries were overpopulated in comparison with their

834
01:29:06.460 --> 01:29:08.300
optimum.

835
01:29:08.300 --> 01:29:15.680
In other words, the high-wage country may have a population below the optimum real income

836
01:29:15.680 --> 01:29:23.780
per head, and the low-wage country may have excessive population over the optimum.

837
01:29:23.780 --> 01:29:31.240
In that case, both countries would enjoy increased real wage rates from the migration, although

838
01:29:31.240 --> 01:29:35.300
the low-wage country would gain more.

839
01:29:35.300 --> 01:29:42.800
It is fashionable to speak of the overpopulation of some countries such as China and India,

840
01:29:42.800 --> 01:29:48.900
and to assert that the Malthusian terrors of population pressing on the food supply

841
01:29:48.900 --> 01:29:51.940
are coming true in these areas.

842
01:29:51.940 --> 01:29:58.000
This is fallacious thinking, derived from focusing on countries instead of the world

843
01:29:58.000 --> 01:30:00.060
market as a whole.

844
01:30:00.060 --> 01:30:07.820
It is fallacious to say that there is overpopulation in some parts of the market and not in others.

845
01:30:07.820 --> 01:30:15.840
The theory of over or underpopulation in relation to an arbitrary maximum of real income per

846
01:30:15.840 --> 01:30:20.740
person applies properly to the market as a whole.

847
01:30:20.740 --> 01:30:28.040
If parts of the market are under and parts overpopulated, the problem stems not from

848
01:30:28.040 --> 01:30:36.880
From Human Reproduction or Human Industry but from Artificial Governmental Barriers to Migration

849
01:30:36.880 --> 01:30:44.200
India is overpopulated only because its citizens will not move abroad or because other governments

850
01:30:44.200 --> 01:30:46.080
will not admit them.

851
01:30:46.080 --> 01:30:53.180
If the former, then the Indians are making a voluntary choice to accept lower money wages

852
01:30:53.180 --> 01:30:58.340
Wages in return for the great psychic gain of living in India.

853
01:30:58.340 --> 01:31:05.260
Wages are equalized internationally only if we incorporate such psychic factors into the

854
01:31:05.260 --> 01:31:06.700
wage rate.

855
01:31:06.700 --> 01:31:15.020
Moreover, if other governments forbid their entry, the problem is not absolute overpopulation,

856
01:31:15.020 --> 01:31:20.860
but coercive barriers thrown up against personal migration.

857
01:31:20.860 --> 01:31:27.120
Parts of the free market who also advocate immigration barriers have rarely faced the

858
01:31:27.120 --> 01:31:30.620
implications of their position.

859
01:31:30.620 --> 01:31:37.540
The loss to everyone as consumers from shackling the inter-regional division of labor and the

860
01:31:37.540 --> 01:31:43.620
efficient location of production should not be overlooked in considering the effects of

861
01:31:43.620 --> 01:31:45.620
immigration barriers.

862
01:31:45.620 --> 01:31:51.620
The reductio ad absurdum, though not quite as devastating as in the case of the tariff,

863
01:31:51.620 --> 01:31:53.700
is also relevant here.

864
01:31:53.700 --> 01:32:00.860
As Oscar W. Cooley and Paul Poirot point out, if it is sound to erect a barrier along our

865
01:32:00.860 --> 01:32:06.820
national boundary lines against those who see greater opportunities here than in their

866
01:32:06.820 --> 01:32:13.580
native land, why should we not erect similar barriers between states and localities within

867
01:32:13.580 --> 01:32:14.980
our nation?

868
01:32:14.980 --> 01:32:21.660
Why should a low-paid worker be allowed to migrate from a failing buggy shop in Massachusetts

869
01:32:21.660 --> 01:32:25.400
to the expanding automobile shops in Detroit?

870
01:32:25.400 --> 01:32:30.800
He would compete with native Detroiters for food and clothing and housing.

871
01:32:30.800 --> 01:32:36.180
He might be willing to work for less than the prevailing wage in Detroit, upsetting

872
01:32:36.180 --> 01:32:38.220
the labor market there.

873
01:32:38.220 --> 01:32:44.380
Anyhow, he was a native of Massachusetts, and therefore that state should bear the full

874
01:32:44.380 --> 01:32:47.980
responsibility for his welfare.

875
01:32:47.980 --> 01:32:53.120
Those are matters we might ponder, but our honest answer to all of them is reflected

876
01:32:53.120 --> 01:32:54.820
in our actions.

877
01:32:54.820 --> 01:32:58.380
We'd rather ride in automobiles than in buggies.

878
01:32:58.380 --> 01:33:04.340
It would be foolish to try to buy an automobile or anything else on the free market, and at

879
01:33:04.340 --> 01:33:12.300
at the same time deny any individual an opportunity to help produce those things we want.

880
01:33:12.300 --> 01:33:18.480
The advocate of immigration laws who fears a reduction in his standard of living is actually

881
01:33:18.480 --> 01:33:21.120
misdirecting his fire.

882
01:33:21.120 --> 01:33:29.000
Implicitly he believes that his geographic area now exceeds its optimum population point.

883
01:33:29.000 --> 01:33:36.520
What he really fears, therefore, is not so much immigration as any population growth.

884
01:33:36.520 --> 01:33:42.600
To be consistent, therefore, he would have to advocate compulsory birth control to slow

885
01:33:42.600 --> 01:33:49.320
down the rate of population growth desired by individual parents.

886
01:33:49.320 --> 01:33:53.440
F. Child labor laws.

887
01:33:53.440 --> 01:33:59.240
Child labor laws are a clear-cut example of restrictions placed on the employment of

888
01:33:59.240 --> 01:34:05.760
some labor for the benefit of restrictive wage rates for the remaining workers.

889
01:34:05.760 --> 01:34:13.480
In an era of much discussion about the unemployment problem, many of those who worry about unemployment

890
01:34:13.480 --> 01:34:21.360
also advocate child labor laws, which coercively prevent the employment of a whole body of

891
01:34:21.360 --> 01:34:22.800
workers.

892
01:34:22.800 --> 01:34:28.420
Child labor laws, then, amount to compulsory unemployment.

893
01:34:28.420 --> 01:34:34.240
Compulsory unemployment, of course, reduces the general supply of labor and raises wage

894
01:34:34.240 --> 01:34:40.820
rates restrictively as the connexity of the labor market diffuses the effects throughout

895
01:34:40.820 --> 01:34:42.340
the market.

896
01:34:42.340 --> 01:34:48.760
Not only is the child prevented from laboring, but the income of families with children is

897
01:34:48.760 --> 01:34:54.920
is arbitrarily lowered by the government, and childless families gain at the expense

898
01:34:54.920 --> 01:34:57.480
of families with children.

899
01:34:57.480 --> 01:35:03.880
Child labor laws penalize families with children because the period of time in which children

900
01:35:03.880 --> 01:35:11.160
remain net monetary liabilities to their parents is thereby prolonged.

901
01:35:11.160 --> 01:35:17.680
Child labor laws, by restricting the supply of labor, lower the production of the economy,

902
01:35:17.680 --> 01:35:23.000
and hence tend to reduce the standard of living of everyone in the society.

903
01:35:23.000 --> 01:35:29.120
Furthermore, the laws do not even have the beneficial effect that compulsory birth control

904
01:35:29.120 --> 01:35:35.680
might have in reducing population when it is above the optimum point, for the total

905
01:35:35.680 --> 01:35:43.500
population is not reduced, except from the indirect effects of the penalty on children,

906
01:35:43.500 --> 01:35:46.320
but the working population is.

907
01:35:46.320 --> 01:35:52.880
To reduce the working population while the consuming population remains undiminished

908
01:35:52.880 --> 01:35:57.080
is to lower the general standard of living.

909
01:35:57.080 --> 01:36:04.320
Child labor laws may take the form of outright prohibition or of requiring working papers

910
01:36:04.320 --> 01:36:10.960
and all sorts of red tape before a youngster can be hired, thus partially achieving the

911
01:36:10.960 --> 01:36:12.480
same effect.

912
01:36:12.480 --> 01:36:19.360
The child labor laws are also bolstered by compulsory school attendance laws.

913
01:36:19.360 --> 01:36:25.680
Compelling a child to remain in a state or state-certified school until a certain age

914
01:36:25.680 --> 01:36:32.680
has the same effect of prohibiting his employment and preserving adult workers from younger

915
01:36:32.680 --> 01:36:34.600
competition.

916
01:36:34.600 --> 01:36:39.960
Compulsory attendance, however, goes even further in compelling a child to absorb a

917
01:36:39.960 --> 01:36:47.380
a certain service, schooling, when he or his parents would prefer otherwise, thus imposing

918
01:36:47.380 --> 01:36:52.100
a further loss of utility upon these children.

919
01:36:52.100 --> 01:36:58.340
An item from the New York Daily News illustrates the connection between child labor laws and

920
01:36:58.340 --> 01:37:04.120
restrictionist wage rates for adults, particularly for unions.

921
01:37:04.120 --> 01:37:11.840
Through the cooperation of some 26,000 grocers plus trade unions, thousands of teenage boys

922
01:37:11.840 --> 01:37:15.240
will get a chance to earn summer spending money.

923
01:37:15.240 --> 01:37:21.520
Deputy Police Commissioner James B. Nolan, President of the Police Athletic League,

924
01:37:21.520 --> 01:37:25.360
PAL, PAL, disclosed yesterday.

925
01:37:25.360 --> 01:37:32.460
The program was worked out by PAL, with the assistance of Grocer Graphic, a trade newspaper.

926
01:37:32.460 --> 01:37:38.940
Raymond Bill, publisher of the trade paper, explained that thousands of groceries can employ

927
01:37:38.940 --> 01:37:46.700
one and in some cases two or three boys in odd jobs which do not interfere with union jobs.

928
01:37:48.220 --> 01:37:50.140
G. Conscription.

929
01:37:51.100 --> 01:37:57.900
It has rarely been realized that conscription is an effective means of granting a monopolistic

930
01:37:57.900 --> 01:38:02.220
Privilege and Imposing Restrictionist Wage Rates.

931
01:38:02.220 --> 01:38:08.940
Conscription, like child labor laws, removes a part of the labor force from competition

932
01:38:08.940 --> 01:38:15.060
in the labor market, in this case, the removal of healthy adult members.

933
01:38:15.060 --> 01:38:22.380
Coerced removal and compulsory labor in the armed forces at only nominal pay increases

934
01:38:22.380 --> 01:38:28.780
is the wage rates of those remaining, especially in those fields most directly competitive

935
01:38:28.780 --> 01:38:31.900
with the jobs of the drafted men.

936
01:38:31.900 --> 01:38:38.900
Of course, the general productivity of the economy also decreases, offsetting the increases

937
01:38:38.900 --> 01:38:41.700
for at least some of the workers.

938
01:38:41.700 --> 01:38:47.820
But as in other cases of monopoly grants, some of the privileged will probably gain

939
01:38:47.820 --> 01:38:50.300
from the governmental action.

940
01:38:50.300 --> 01:38:56.740
Indirectly, conscription is a method by which the government can commandeer labor at far

941
01:38:56.740 --> 01:39:03.260
less than market wage rates, the rate it would have to pay to induce the enlistment of a

942
01:39:03.260 --> 01:39:05.620
volunteer army.

943
01:39:05.620 --> 01:39:12.560
H. Minimum Wage Laws and Compulsory Unionism

944
01:39:12.560 --> 01:39:18.120
Compulsory unemployment is achieved indirectly through minimum wage laws.

945
01:39:18.120 --> 01:39:24.080
On the free market, everyone's wage tends to be set at his discounted marginal value

946
01:39:24.080 --> 01:39:25.680
productivity.

947
01:39:25.680 --> 01:39:33.880
A minimum wage law means that those whose DMVP is below the legal minimum are prevented

948
01:39:33.880 --> 01:39:35.440
from working.

949
01:39:35.440 --> 01:39:41.960
The worker was willing to take the job and the employer to hire him, but the decree of

950
01:39:41.960 --> 01:39:46.640
the state prevents this hiring from taking place.

951
01:39:46.640 --> 01:39:54.260
Impulsory unemployment thus removes the competition of marginal workers and raises the wage rates

952
01:39:54.260 --> 01:39:56.560
of the other workers remaining.

953
01:39:56.560 --> 01:40:03.240
Thus, while the announced aim of a minimum wage law is to improve the incomes of the

954
01:40:03.240 --> 01:40:08.280
marginal workers, the actual effect is precisely the reverse.

955
01:40:08.280 --> 01:40:12.800
It is to render them unemployable at legal wage rates.

956
01:40:12.800 --> 01:40:19.800
The higher the minimum wage rate relative to free market rates, the greater the resulting unemployment.

957
01:40:19.800 --> 01:40:28.800
Unions aim for restrictionist wage rates, which on a partial scale cause distortions in production,

958
01:40:28.800 --> 01:40:33.800
lower wage rates for non-members and pockets of unemployment,

959
01:40:33.800 --> 01:40:40.800
and on a general scale lead to greater distortions and permanent mass unemployment.

960
01:40:40.800 --> 01:41:00.800
By enforcing restrictive production rules rather than allowing individual workers voluntarily to accept work rules laid down by the enterpriser in the use of his property, unions reduce general productivity and hence the living standards of the economy.

961
01:41:00.800 --> 01:41:16.800
Any governmental encouragement of unions, therefore, such as is imposed under the Wagner-Taft-Hartley Act, leads to a regime of restrictive wage rates, injury to production, and general unemployment.

962
01:41:16.800 --> 01:41:24.040
The indirect effect on employment is similar to that of a minimum wage law, except that

963
01:41:24.040 --> 01:41:31.200
fewer workers are affected, and it is then the union-enforced minimum wage that is being

964
01:41:31.200 --> 01:41:33.160
imposed.

965
01:41:33.160 --> 01:41:37.960
i. Subsidies to Unemployment

966
01:41:37.960 --> 01:41:44.120
Government unemployment benefits are an important means of subsidizing unemployment caused by

967
01:41:44.120 --> 01:41:47.120
by Unions or Minimum Wage Laws

968
01:41:47.120 --> 01:41:54.120
When restrictive wage rates lead to unemployment, the government steps in to prevent the unemployed

969
01:41:54.120 --> 01:42:00.680
workers from injuring union solidarity and union-enforced wage rates.

970
01:42:00.680 --> 01:42:07.520
By receiving unemployment benefits, the mass of potential competitors with unions are removed

971
01:42:07.520 --> 01:42:13.880
from the labor market, thus permitting an indefinite extension of union policies.

972
01:42:13.880 --> 01:42:21.880
This removal of workers from the labor market is financed by the taxpayers, the general public.

973
01:42:21.880 --> 01:42:26.880
J. Penalties on Market Forms

974
01:42:26.880 --> 01:42:33.880
Any form of governmental penalty on a type of market production or organization

975
01:42:33.880 --> 01:42:40.880
injures the efficiency of the economic system and prevents the maximum remuneration to factors,

976
01:42:40.880 --> 01:42:53.600
The most efficient are penalized, and indirectly the least efficient producers are subsidized.

977
01:42:53.600 --> 01:42:59.720
This tends not only to stifle market forms that are efficient in adapting the economy

978
01:42:59.720 --> 01:43:08.120
to changes in consumer valuations and given resources, but also to perpetuate inefficient

979
01:43:08.120 --> 01:43:09.120
forms.

980
01:43:09.120 --> 01:43:15.240
There are many ways in which governments have granted quasi-monopoly privileges to inefficient

981
01:43:15.240 --> 01:43:20.840
producers by imposing special penalties on the efficient.

982
01:43:20.840 --> 01:43:28.020
Special chain store taxes hobble chain stores and injure consumers for the benefit of their

983
01:43:28.020 --> 01:43:30.440
inefficient competitors.

984
01:43:30.440 --> 01:43:37.940
Numerous ordinances outlawing pushcart peddlers destroy an efficient market form and efficient

985
01:43:37.940 --> 01:43:45.780
Entrepreneurs for the benefit of less efficient but more politically influential competitors.

986
01:43:45.780 --> 01:43:52.440
Laws closing businesses at specific hours injure the dynamic competitors who wish to

987
01:43:52.440 --> 01:43:59.860
stay open and prevent consumers from maximizing their utilities in the time pattern of their

988
01:43:59.860 --> 01:44:01.740
purchases.

989
01:44:01.740 --> 01:44:10.100
Income taxes place an extra burden on corporations, penalizing these efficient market forms and

990
01:44:10.100 --> 01:44:13.140
privileging their competitors.

991
01:44:13.140 --> 01:44:19.980
Government requirements of reports from businesses place artificial restrictions on small firms

992
01:44:19.980 --> 01:44:27.700
with relatively little capital and constitute an indirect grant of privilege to large business

993
01:44:27.700 --> 01:44:29.320
competitors.

994
01:44:29.320 --> 01:44:36.460
The withholding tax is an example of a wartime measure that now appears to be an indestructible

995
01:44:36.460 --> 01:44:38.840
part of our tax system.

996
01:44:38.840 --> 01:44:44.900
It compels businesses to be tax collectors for the government without pay.

997
01:44:44.900 --> 01:44:51.880
It is thus a type of binary intervention that particularly penalizes small firms, which

998
01:44:51.880 --> 01:44:59.380
which are burdened more than proportionately by the overhead requirements of running their business.

999
01:44:59.380 --> 01:45:10.880
All forms of government regulation of business, in fact, penalize efficient competitors and grant monopolistic privileges to the inefficient.

1000
01:45:10.880 --> 01:45:18.880
An important example is regulation of insurance companies, particularly those selling life insurance.

1001
01:45:18.880 --> 01:45:25.400
Insurance is a speculative enterprise as is any other, but based on the relatively greater

1002
01:45:25.400 --> 01:45:29.000
certainty of biological mortality.

1003
01:45:29.000 --> 01:45:35.480
All that is necessary for life insurance is for premiums to be currently levied in sufficient

1004
01:45:35.480 --> 01:45:41.520
amount to pay benefits to the actuarially expected beneficiaries.

1005
01:45:41.520 --> 01:45:48.720
Yet life insurance companies have peculiarly launched into the investment business by contending

1006
01:45:48.720 --> 01:45:54.960
are saying that they need to build up a net reserve so large as to be almost sufficient

1007
01:45:54.960 --> 01:46:01.160
to pay all benefits if half the population died immediately.

1008
01:46:01.160 --> 01:46:07.160
They are able to accumulate such reserves by charging premiums far higher than would

1009
01:46:07.160 --> 01:46:10.480
be needed for mere insurance protection.

1010
01:46:10.480 --> 01:46:16.720
Furthermore, by charging constant premiums over the years, they are able to phase out

1011
01:46:16.720 --> 01:46:23.720
The insurance companies have been able to charge and collect the absurdly high premiums required by such a policy, because state governments have outlawed their own policies.

1012
01:46:46.720 --> 01:47:16.220
It may seem strange to the reader that one of the most important

1013
01:47:16.220 --> 01:47:24.220
Governmental Checks on Efficient Competition, and therefore Grants of Quasi-Monopolies, are the

1014
01:47:24.220 --> 01:47:31.820
Anti-Trust Laws. Very few, whether economists or others, have questioned the principle of the

1015
01:47:31.820 --> 01:47:37.500
anti-trust laws, particularly now that they have been on the statute books for some years.

1016
01:47:38.060 --> 01:47:45.020
As is true of many other measures, evaluation of the anti-trust laws has not proceeded from

1017
01:47:45.020 --> 01:47:51.720
from an analysis of their nature or of their necessary consequences, but from an impressionistic

1018
01:47:51.720 --> 01:47:55.160
reaction to their announced aims.

1019
01:47:55.160 --> 01:48:01.180
The chief criticism of these laws is that they haven't gone far enough.

1020
01:48:01.180 --> 01:48:07.100
Some of those most ardent in the proclamation of their belief in the free market have been

1021
01:48:07.100 --> 01:48:14.660
most clamorous in calling for stringent antitrust laws and the breakup of monopolies.

1022
01:48:14.660 --> 01:48:22.360
Even the most right-wing economists have only gingerly criticized certain antitrust procedures

1023
01:48:22.360 --> 01:48:27.880
without daring to attack the principle of the laws per se.

1024
01:48:27.880 --> 01:48:34.600
The only viable definition of monopoly is a grant of privilege from the government.

1025
01:48:34.600 --> 01:48:40.760
It therefore becomes quite clear that it is impossible for the government to decrease

1026
01:48:40.760 --> 01:48:47.420
Decrease Monopoly by Passing Punitive Laws The only way for the government to decrease

1027
01:48:47.420 --> 01:48:54.720
monopoly, if that is the desideratum, is to remove its own monopoly grants.

1028
01:48:54.720 --> 01:49:00.480
The antitrust laws, therefore, do not in the least diminish monopoly.

1029
01:49:00.480 --> 01:49:07.760
What they do accomplish is to impose a continual capricious harassment of efficient business

1030
01:49:07.760 --> 01:49:09.040
enterprise.

1031
01:49:09.040 --> 01:49:16.040
The law in the United States is couched in vague, indefinable terms, permitting the administration

1032
01:49:16.040 --> 01:49:24.480
and the courts to omit defining in advance what is a monopolistic crime and what is not.

1033
01:49:24.480 --> 01:49:32.800
Whereas Anglo-Saxon law has rested on a structure of clear definitions of crime, known in advance

1034
01:49:32.800 --> 01:49:40.840
and discoverable by a jury after due legal process, the antitrust laws thrive on deliberate

1035
01:49:40.840 --> 01:49:44.920
vagueness and ex post facto rulings.

1036
01:49:44.920 --> 01:49:51.000
No businessman knows when he has committed a crime and when he has not, and he will never

1037
01:49:51.000 --> 01:49:58.720
know until the government, perhaps after another shift in its own criteria of crime, swoops

1038
01:49:58.720 --> 01:50:01.900
down upon him and prosecutes.

1039
01:50:01.900 --> 01:50:10.140
The effects of these arbitrary rules and ex post facto findings of crime are manifold.

1040
01:50:10.140 --> 01:50:12.700
Business initiative is hampered.

1041
01:50:12.700 --> 01:50:18.840
Businessmen are fearful and subservient to the arbitrary rulings of government officials,

1042
01:50:18.840 --> 01:50:24.140
and business is not permitted to be efficient in serving the consumer.

1043
01:50:24.140 --> 01:50:30.500
Since business always tends to adopt those practices and that scale of activity which

1044
01:50:30.500 --> 01:50:37.680
which maximize profits and income and serve the consumers best, any harassment of business

1045
01:50:37.680 --> 01:50:46.340
practice by government can only hamper business efficiency and reward inefficiency.

1046
01:50:46.340 --> 01:50:54.180
It is vain, however, to call simply for clearer statutory definitions of monopolistic practice.

1047
01:50:54.180 --> 01:51:00.480
For the vagueness of the law results from the impossibility of laying down a cogent

1048
01:51:00.480 --> 01:51:08.400
definition of monopoly on the market, hence the chaotic shift of the government from one

1049
01:51:08.400 --> 01:51:17.160
unjustifiable criterion of monopoly to another, size of firm, closeness of substitutes, charging

1050
01:51:17.160 --> 01:51:23.380
Merging a price too high or too low or the same as a competitor.

1051
01:51:23.380 --> 01:51:28.240
Merging that substantially lessens competition, etc.

1052
01:51:28.240 --> 01:51:31.360
All these criteria are meaningless.

1053
01:51:31.360 --> 01:51:37.180
An example is the criterion of substantially lessening competition.

1054
01:51:37.180 --> 01:51:44.500
This implicitly assumes that competition is some sort of quantity, but it is not.

1055
01:51:44.500 --> 01:51:52.780
It is a process whereby individuals and firms supply goods on the market without using

1056
01:51:52.780 --> 01:51:53.780
force.

1057
01:51:53.780 --> 01:52:01.380
To preserve competition does not mean to dictate arbitrarily that a certain number of firms

1058
01:52:01.380 --> 01:52:06.720
of a certain size have to exist in an industry or area.

1059
01:52:06.720 --> 01:52:14.100
It means to see to it that men are free to compete or not, unrestrained by the use of

1060
01:52:14.100 --> 01:52:16.100
of Force.

1061
01:52:16.100 --> 01:52:22.220
The original Sherman Act stressed collusion in restraint of trade.

1062
01:52:22.220 --> 01:52:30.500
Here again, there is nothing anti-competitive, per se, about a cartel, for there is, conceptually,

1063
01:52:30.500 --> 01:52:36.980
no difference between a cartel, a merger, and the formation of a corporation.

1064
01:52:36.980 --> 01:52:45.500
All consist of the voluntary pooling of assets in one firm to serve the consumers efficiently.

1065
01:52:45.500 --> 01:52:52.300
If collusion must be stopped, and cartels must be broken up by the government, that

1066
01:52:52.300 --> 01:53:01.500
is, if to maintain competition it is necessary that cooperation be destroyed, then the anti-monopolists

1067
01:53:01.500 --> 01:53:08.620
This must advocate the complete prohibition of all corporations and partnerships.

1068
01:53:08.620 --> 01:53:13.100
Only individually owned firms would then be tolerated.

1069
01:53:13.100 --> 01:53:20.620
Aside from the fact that this compulsory competition and outlawed cooperation is hardly compatible

1070
01:53:20.620 --> 01:53:27.900
with the free market that many antitrustors profess to advocate, the inefficiency and

1071
01:53:27.900 --> 01:53:34.780
and lower productivity stemming from the outlawing of pooled capital would send the economy a

1072
01:53:34.780 --> 01:53:39.900
good part of the way from civilization to barbarism.

1073
01:53:39.900 --> 01:53:47.240
An individual becoming idle instead of working may be said to restrain trade, although he

1074
01:53:47.240 --> 01:53:52.500
is simply not engaging in it rather than restraining it.

1075
01:53:52.500 --> 01:53:59.060
If anti-trusters wish to prevent idleness, which is the logical extension of the W.H.

1076
01:53:59.060 --> 01:54:06.260
Hutt concept of consumer sovereignty, then they would have to pass a law compelling labor

1077
01:54:06.260 --> 01:54:12.300
and outlawing leisure, a condition certainly close to slavery.

1078
01:54:12.300 --> 01:54:19.180
Municipal ordinances against vagrancy or loitering are certainly a beginning in this direction,

1079
01:54:19.180 --> 01:54:25.840
and are used to impose forced labor upon the poorest sectors of the population.

1080
01:54:25.840 --> 01:54:33.700
But if we confine the definition of restraint to restraining the trade of others, then clearly

1081
01:54:33.700 --> 01:54:41.140
there can be no restraint of trade at all on the free market, and only the government

1082
01:54:41.140 --> 01:54:47.540
or some other institution using violence can restrain trade.

1083
01:54:47.540 --> 01:54:56.100
and one conspicuous form of such restraint is antitrust legislation itself.

1084
01:54:56.100 --> 01:55:02.540
One of the few cogent discussions of the antitrust principle in recent years has been that of

1085
01:55:02.540 --> 01:55:04.440
Isabel Patterson.

1086
01:55:04.440 --> 01:55:10.300
As Mrs. Patterson states, standard oil did not restrain trade.

1087
01:55:10.300 --> 01:55:14.420
It went out to the ends of the earth to make a market.

1088
01:55:14.420 --> 01:55:21.140
Can the corporations be said to have restrained trade when the trade they cater to had no

1089
01:55:21.140 --> 01:55:25.860
existence until they produced and sold the goods?

1090
01:55:25.860 --> 01:55:32.060
Were the motor car manufacturers restraining trade during the period in which they made

1091
01:55:32.060 --> 01:55:39.020
and sold 50 million cars, where there had been no cars before?

1092
01:55:39.020 --> 01:55:46.180
Nothing more preposterous could have been imagined than to fix upon the American corporations

1093
01:55:46.180 --> 01:55:55.180
which have created and carried on in ever-increasing magnitude a volume and variety of trade so

1094
01:55:55.180 --> 01:56:03.060
vast that it makes all previous production and exchange look like a rural roadside stand

1095
01:56:03.060 --> 01:56:11.700
and call this performance restraint of trade, further stigmatizing it as a crime.

1096
01:56:11.700 --> 01:56:19.580
And Mrs. Patterson concludes, government cannot restore competition or insure it.

1097
01:56:19.580 --> 01:56:27.020
Government is monopoly, and all it can do is to impose restrictions which may issue

1098
01:56:27.020 --> 01:56:28.700
in monopoly.

1099
01:56:28.700 --> 01:56:35.940
When they go so far as to require permission for the individual to engage in production.

1100
01:56:35.940 --> 01:56:39.900
This is the essence of the society of status.

1101
01:56:39.900 --> 01:56:46.220
The reversion to status law in the antitrust legislation went unnoticed.

1102
01:56:46.220 --> 01:56:52.260
The politicians had secured a law under which it was impossible for the citizen to know

1103
01:56:52.260 --> 01:56:59.540
know beforehand what constituted a crime, and which therefore made all productive effort

1104
01:56:59.540 --> 01:57:05.460
liable to prosecution, if not to certain conviction.

1105
01:57:05.460 --> 01:57:11.420
In the earlier days of the trust problem, Paul de Roussier commented,

1106
01:57:11.420 --> 01:57:18.900
Directly the formation of trusts is not induced by the natural action of economic forces.

1107
01:57:18.900 --> 01:57:25.080
As soon as they depend on artificial protection such as tariffs, the most effective method

1108
01:57:25.080 --> 01:57:31.780
of attack is to simply reduce the number and force of these protective accidents to the

1109
01:57:31.780 --> 01:57:34.200
greatest possible extent.

1110
01:57:34.200 --> 01:57:41.740
We can attack artificial conditions, but are impotent when opposing natural conditions.

1111
01:57:41.740 --> 01:57:49.300
America has hitherto pursued the exactly reverse methods, blaming economic forces tending to

1112
01:57:49.300 --> 01:57:56.820
concentrate industry and joining issue by means of antitrust legislation, a series of

1113
01:57:56.820 --> 01:57:59.860
entirely artificial measures.

1114
01:57:59.860 --> 01:58:05.460
Thus there is to be no understanding between competing companies, etc.

1115
01:58:05.460 --> 01:58:11.100
The results have been pitiful, a violent restriction of fruitful initiative.

1116
01:58:11.100 --> 01:58:17.340
The legislation does not touch the rest of the evil, enlarges in place of restraining

1117
01:58:17.340 --> 01:58:24.540
artificial conditions, and finally regulates and complicates matters whose supreme needs

1118
01:58:24.540 --> 01:58:29.580
are simplification and removal of restrictions.

1119
01:58:29.580 --> 01:58:37.580
L. Outlawing Basing Point Pricing An important example of the monopolizing effects

1120
01:58:37.580 --> 01:58:45.060
Parts of a program supposedly designed to combat monopoly is the court decision outlawing

1121
01:58:45.060 --> 01:58:47.580
basing point pricing.

1122
01:58:47.580 --> 01:58:55.080
On the free market, price uniformity means uniformity at each consuming center and not

1123
01:58:55.080 --> 01:58:57.900
uniformity at each mill.

1124
01:58:57.900 --> 01:59:04.220
In commodities where freight costs are a large proportion of final price, this distinction

1125
01:59:04.220 --> 01:59:12.020
is important, and many firms adopt such price uniformity, enabling firms further away from

1126
01:59:12.020 --> 01:59:19.760
a consuming center to absorb some freight charges in order to compete with local firms.

1127
01:59:19.760 --> 01:59:27.180
One of the forms of freight absorption is called basing point pricing, ruling this practice

1128
01:59:27.180 --> 01:59:34.420
This monopolistic, and virtually decreeing that every firm must charge uniform prices

1129
01:59:34.420 --> 01:59:41.440
at the mill, not only prevents interlocational competition in such industries, but confers

1130
01:59:41.440 --> 01:59:46.340
an artificial monopolistic privilege on local firms.

1131
01:59:46.340 --> 01:59:52.960
Each local firm is granted the area of its own location, with a haven set by the freight

1132
01:59:52.960 --> 01:59:59.520
Freight costs of out-of-town rivals, within which it can charge its customers a monopoly

1133
01:59:59.520 --> 02:00:00.920
price.

1134
02:00:00.920 --> 02:00:07.320
Firms better able to absorb freight costs and prosper in a wider market are penalized

1135
02:00:07.320 --> 02:00:09.840
and prevented from doing so.

1136
02:00:09.840 --> 02:00:17.180
Furthermore, the decreasing cost advantages of a large-scale market and large-scale production

1137
02:00:17.180 --> 02:00:22.920
are eliminated, as each firm is confined to a small compass.

1138
02:00:22.920 --> 02:00:35.920
The firm's locations are altered and they are forced to cluster near large consuming areas, despite the greater advantages that other locations had offered to these companies.

1139
02:00:35.920 --> 02:00:48.920
Furthermore, such a ruling penalizes small businesses, since only large firms can afford to build many branches to compete in each local area.

1140
02:00:48.920 --> 02:00:52.440
M. Conservation Laws.

1141
02:00:52.440 --> 02:00:57.280
Conservation laws restrict the use of depleting resources

1142
02:00:57.280 --> 02:01:00.360
and force owners to invest in the maintenance

1143
02:01:00.360 --> 02:01:03.780
of replaceable natural resources.

1144
02:01:03.780 --> 02:01:06.960
The effect of both cases is similar.

1145
02:01:06.960 --> 02:01:09.400
The restriction of present production

1146
02:01:09.400 --> 02:01:12.980
for the supposed benefit of future production.

1147
02:01:12.980 --> 02:01:16.920
This is obvious in the case of depleting resources.

1148
02:01:16.920 --> 02:01:23.800
Factors are also compelled to maintain replaceable resources, such as trees, when they could

1149
02:01:23.800 --> 02:01:28.400
have more profitably engaged in other forms of production.

1150
02:01:28.400 --> 02:01:32.240
In the latter case, there is a double distortion.

1151
02:01:32.240 --> 02:01:39.160
Factors are forcibly shifted to future production, and they are also forced into a certain type

1152
02:01:39.160 --> 02:01:44.560
of future production, the replacement of these particular resources.

1153
02:01:44.560 --> 02:01:52.440
Clearly, one aim of conservation laws is to force the ratio of consumption to saving,

1154
02:01:52.440 --> 02:01:56.640
investment, lower than the market would prefer.

1155
02:01:56.640 --> 02:02:03.640
People's voluntary allocations made according to their time preferences are forcibly altered,

1156
02:02:03.640 --> 02:02:09.560
and relatively more investment is forced into production for future consumption.

1157
02:02:09.560 --> 02:02:17.140
In short, the state decides that the present generation must be made to allocate its resources

1158
02:02:17.140 --> 02:02:20.880
more to the future than it wishes to do.

1159
02:02:20.880 --> 02:02:27.740
For this service, the state is held up as being far-seeing, compared to short-sighted

1160
02:02:27.740 --> 02:02:29.980
free individuals.

1161
02:02:29.980 --> 02:02:37.100
But presumably, depleting resources must be used at some time, and some balance must always

1162
02:02:37.100 --> 02:02:44.300
be struck between present and future production. Why does the claim of the present generation

1163
02:02:44.300 --> 02:02:51.180
weigh so lightly in the scales? Why is the future generation so much more worthy that

1164
02:02:51.180 --> 02:02:58.620
it can compel the present to carry a greater load? What did the future ever do to deserve

1165
02:02:58.620 --> 02:03:05.500
privileged treatment? Anthony Scott points out that this attitude rests on the contemptuous

1166
02:03:05.500 --> 02:03:12.860
and Unsupported View that future generations will not be as competent to take care of themselves

1167
02:03:12.860 --> 02:03:20.380
as is the present generation. Indeed, since the future is likely to be wealthier than the present,

1168
02:03:20.380 --> 02:03:27.260
the reverse might well apply. The same reasoning applies to all attempts to change the market's

1169
02:03:27.260 --> 02:03:34.860
time preference ratio. Why should the future be able to enforce greater sacrifices on the present

1170
02:03:34.860 --> 02:03:42.220
then the present is willing to undergo. Furthermore, after a span of years, the future will become

1171
02:03:42.220 --> 02:03:49.500
the present. Must the future generations then also be restricted in their production and consumption

1172
02:03:49.500 --> 02:03:56.380
because of another wraith-like future? It must not be forgotten that the aim of all productive

1173
02:03:56.380 --> 02:04:05.220
of Activity is goods and services that will and can be consumed only in some present.

1174
02:04:05.220 --> 02:04:12.100
There is no rational basis for penalizing consumption in one present and privileging

1175
02:04:12.100 --> 02:04:18.700
one future present, and there is still less reason for restricting all presents in favor

1176
02:04:18.700 --> 02:04:26.180
of some will-of-the-wisp future that can never appear and lies always beyond the horizon.

1177
02:04:26.180 --> 02:04:34.020
Yet this is the goal of conservation laws. Conservation laws are truly pie-in-the-sky

1178
02:04:34.020 --> 02:04:42.500
legislation. As Scott aptly asks, why agree to preserve resources as they would be in the

1179
02:04:42.500 --> 02:04:49.940
absence of their human users? And further, most of our progress has taken the form of converting

1180
02:04:49.940 --> 02:04:54.820
Natural Resources into more desirable forms of wealth.

1181
02:04:54.820 --> 02:05:01.180
If man had prized natural resources above his own product, he would doubtless have remained

1182
02:05:01.180 --> 02:05:04.420
savage, practicing conservatism.

1183
02:05:04.420 --> 02:05:10.420
If the logic of tariffs is to destroy the market, then the logic of conservation laws

1184
02:05:10.420 --> 02:05:16.580
is to destroy all human production and consumption.

1185
02:05:16.580 --> 02:05:23.220
Rentals in the market decide on the time structure in their allocation of factors in accordance

1186
02:05:23.220 --> 02:05:31.500
with the estimated revenue that their resources will bring in present as against future use.

1187
02:05:31.500 --> 02:05:38.540
In other words, they will tend to maximize the present value at any time of their land

1188
02:05:38.540 --> 02:05:40.700
and capital assets.

1189
02:05:40.700 --> 02:05:47.300
The time structure of rental income from assets is determined by the interest rate, which

1190
02:05:47.300 --> 02:05:54.780
in turn is determined by the time preference schedules of all individuals on the market.

1191
02:05:54.780 --> 02:06:01.300
Time preference, in addition to the specific estimated demands for each good, will determine

1192
02:06:01.300 --> 02:06:05.180
the allocations of factors to each use.

1193
02:06:05.180 --> 02:06:11.820
Since a lower time preference will connote more investment in future consumers' goods,

1194
02:06:11.820 --> 02:06:16.860
it will also mean more conservation of natural resources.

1195
02:06:16.860 --> 02:06:25.340
A high time preference will lead to less investment and more consumption in the present, and consequently

1196
02:06:25.340 --> 02:06:28.100
to less conservation.

1197
02:06:28.100 --> 02:06:35.500
In some cases, however, lower time preferences and greater investment activity will deplete

1198
02:06:35.500 --> 02:06:42.200
natural resources at a more rapid rate if there is a particularly great demand for their

1199
02:06:42.200 --> 02:06:44.800
use in the new activity.

1200
02:06:44.800 --> 02:06:51.020
This is likely to be true of such resources as coal and oil.

1201
02:06:51.020 --> 02:06:57.140
Most conservationist arguments evince almost no familiarity with economics.

1202
02:06:57.140 --> 02:07:04.300
Many assume that entrepreneurs have no foresight and would blithely use natural resources only

1203
02:07:04.300 --> 02:07:08.840
to find themselves someday suddenly without any property.

1204
02:07:08.840 --> 02:07:13.780
Only the wise providential state can foresee depletion.

1205
02:07:13.780 --> 02:07:19.300
The absurdity of this argument is evident when we realize that the present value of

1206
02:07:19.300 --> 02:07:27.060
the entrepreneur's land is dependent on the expected future rents from his resources.

1207
02:07:27.060 --> 02:07:32.820
Even if the entrepreneur himself should be unaccountably ignorant, the market will not

1208
02:07:32.820 --> 02:07:40.340
be, and its valuation, that is, the valuation of interested experts with money at stake,

1209
02:07:40.340 --> 02:07:44.020
will tend to reflect its value accurately.

1210
02:07:44.020 --> 02:07:50.780
In fact, it is the entrepreneur's business to forecast, and he is rewarded for correct

1211
02:07:50.780 --> 02:07:53.500
forecasting by profits.

1212
02:07:53.500 --> 02:08:00.100
Will entrepreneurs on the market have less foresight than bureaucrats comfortably ensconced

1213
02:08:00.100 --> 02:08:04.140
in their seizure of the taxpayers' money?

1214
02:08:04.140 --> 02:08:09.700
Entrepreneurs with poor foresight are quickly expelled from their positions through losses.

1215
02:08:09.700 --> 02:08:16.220
It is ironic that the plight of the Okies in the 1930s, widely publicized as a plea

1216
02:08:16.220 --> 02:08:23.220
for conservation laws and the result of cruel capitalism, actually resulted from the fact

1217
02:08:23.220 --> 02:08:30.820
that bad entrepreneurs, the Okies, farmed land that was valueless and sub-marginal.

1218
02:08:30.820 --> 02:08:38.420
Forced conservation investment on this sub-marginal land or government subsidization of the Okies

1219
02:08:38.420 --> 02:08:44.320
would have aggravated a dislocation that the market quickly eliminated.

1220
02:08:44.320 --> 02:08:50.820
Much American soil erosion, furthermore, has stemmed from failure to preserve full private

1221
02:08:50.820 --> 02:08:58.260
Property Rights in Land. Tenant farmers, moving every few years, often milked the capital of the

1222
02:08:58.260 --> 02:09:05.380
landlord's property, wasting the resource, in default of proper enforcement of the contractual

1223
02:09:05.380 --> 02:09:14.100
necessity to return the land to its owner intact. Another error made by the conservationists is to

1224
02:09:14.100 --> 02:09:21.980
To assume a technology fixed for all time, human beings use what resources they have,

1225
02:09:21.980 --> 02:09:28.580
and as technological knowledge grows, the types of usable resources multiply.

1226
02:09:28.580 --> 02:09:36.020
If we have less timber to use than past generations, we need less, too, for we have found other

1227
02:09:36.020 --> 02:09:40.960
materials that can be used for construction or fuel.

1228
02:09:40.960 --> 02:09:48.240
These generations possessed an abundance of oil in the ground, but for them, oil was valueless,

1229
02:09:48.240 --> 02:09:50.720
and hence, not a resource.

1230
02:09:50.720 --> 02:09:56.880
Our modern advances have taught us how to use oil, and have enabled us to produce the

1231
02:09:56.880 --> 02:09:59.480
equipment for this purpose.

1232
02:09:59.480 --> 02:10:03.440
Our oil resources, therefore, are not fixed.

1233
02:10:03.440 --> 02:10:08.840
They are infinitely greater than those of past generations.

1234
02:10:08.840 --> 02:10:15.480
Capital conservation will wastefully prolong resources beyond the time when they have become

1235
02:10:15.480 --> 02:10:17.560
obsolete.

1236
02:10:17.560 --> 02:10:24.760
How many writers have wept over capitalism's brutal ravaging of the American forests?

1237
02:10:24.760 --> 02:10:31.840
Yet it is clear that American land has had more value-productive uses than timber production,

1238
02:10:31.840 --> 02:10:38.360
and hence the land was diverted to those ends that better satisfied consumer wants.

1239
02:10:38.360 --> 02:10:46.680
A typical conservationist complainer was J.D. Brown, who in 1832 worried over the consumption

1240
02:10:46.680 --> 02:10:47.680
of timber.

1241
02:10:47.680 --> 02:10:54.160
Whence shall we procure supplies of timber 50 years hence for the continuance of our

1242
02:10:54.160 --> 02:10:55.160
Navy?

1243
02:10:55.160 --> 02:11:01.520
Scott notes that the critics never seem to realize that a nation's timber can be purchased

1244
02:11:01.520 --> 02:11:03.320
from abroad.

1245
02:11:03.320 --> 02:11:07.020
What standards can the critics set up instead?

1246
02:11:07.020 --> 02:11:12.460
If they think too much forest has been cut down, how can they arrive at a quantitative

1247
02:11:12.460 --> 02:11:17.060
standard to determine how much is too much?

1248
02:11:17.060 --> 02:11:23.160
In fact, it is impossible to arrive at any such standard, just as it is impossible to

1249
02:11:23.160 --> 02:11:29.760
arrive at any quantitative standards for market action outside the market.

1250
02:11:29.760 --> 02:11:37.920
Any attempt to do so must be arbitrary and unsupported by any rational principle.

1251
02:11:37.920 --> 02:11:44.640
America has been the prime home of conservation laws, particularly on behalf of its public

1252
02:11:44.640 --> 02:11:46.240
domain.

1253
02:11:46.240 --> 02:11:51.920
Under a purely free enterprise system, there would be no such thing as a governmentally

1254
02:11:51.920 --> 02:11:54.480
owned public domain.

1255
02:11:54.480 --> 02:12:01.100
and would simply remain unowned until it first came into use, after which it would be owned

1256
02:12:01.100 --> 02:12:05.560
by the first user and his heirs or assigns.

1257
02:12:05.560 --> 02:12:11.320
This system was dimly adumbrated by the Homestead Law of 1862.

1258
02:12:11.320 --> 02:12:18.740
However, this law imposed an arbitrary and pointless maximum on the size of farm that

1259
02:12:18.740 --> 02:12:22.100
could be staked out by the first user.

1260
02:12:22.100 --> 02:12:28.300
This limitation had the result of nullifying the law further west where the minimum acreage

1261
02:12:28.300 --> 02:12:35.300
needed for cattle or sheep grazing was far larger than the antiquated legal maximum would

1262
02:12:35.300 --> 02:12:36.300
allow.

1263
02:12:36.300 --> 02:12:43.220
Furthermore, the maximum limitation and the requirement that the land be used for farming

1264
02:12:43.220 --> 02:12:50.620
led to the very ravaging of the forests that conservationists now deplore, for it hobbled

1265
02:12:50.620 --> 02:12:54.540
Private Ownership of Large Forest Tracts

1266
02:12:54.540 --> 02:13:01.180
The consequences of government ownership of the public domain will be further explored later.

1267
02:13:01.180 --> 02:13:03.660
Here we may state a few of them.

1268
02:13:03.660 --> 02:13:09.660
When the government owns the land and permits private individuals to use it freely,

1269
02:13:09.660 --> 02:13:15.420
the result is indeed a wasteful over-exploitation of the resource.

1270
02:13:15.420 --> 02:13:22.160
More factors are employed to use up the resource than on a free market, since the only gains

1271
02:13:22.160 --> 02:13:29.800
to the users are immediate, and if they wait, other users will deplete the limited resource.

1272
02:13:29.800 --> 02:13:37.460
Free use of a governmentally owned resource truly inaugurates a war of all against all,

1273
02:13:37.460 --> 02:13:44.860
as more and more users, eager for the free bargain, attempt to exploit the scarce resource.

1274
02:13:44.860 --> 02:13:52.060
To have a scarce resource and to make everyone believe because of the free gift of use that

1275
02:13:52.060 --> 02:13:59.700
its supply is unlimited causes overuse of the resource, favoritism, figurative queuing

1276
02:13:59.700 --> 02:14:01.500
up, etc.

1277
02:14:01.500 --> 02:14:07.860
A striking example was the Western grazing lands in the latter half of the 19th century.

1278
02:14:07.860 --> 02:14:14.000
The government prevented cattlemen from owning the land and fencing it in, and insisted it

1279
02:14:14.000 --> 02:14:18.080
be kept as open range owned by the government.

1280
02:14:18.080 --> 02:14:24.320
The result was excessive use of the range and its untimely depletion.

1281
02:14:24.320 --> 02:14:29.920
The government's failure to extend the homestead principle to the larger areas had another

1282
02:14:29.920 --> 02:14:32.100
important social effect.

1283
02:14:32.100 --> 02:14:38.480
It led to constant squabbles between the users, the cattlemen and the other homesteaders who

1284
02:14:38.480 --> 02:14:43.480
who came later and demanded their just share of the free land.

1285
02:14:44.560 --> 02:14:48.560
Another example is the rapid depletion of the fisheries.

1286
02:14:48.560 --> 02:14:52.800
Since no one is permitted to own any segment of the sea,

1287
02:14:52.800 --> 02:14:56.320
no one sees any sense in preserving the value

1288
02:14:56.320 --> 02:15:01.280
of the resource as each is benefited only by rapid use

1289
02:15:01.280 --> 02:15:03.520
in advance of his competitors.

1290
02:15:03.520 --> 02:15:22.520
Leasing is hardly a superior form of land use. If the government owns the land and leases it to grazers or timber users, once again, there is no incentive for the laissee to preserve the value of the resource since he does not own it.

1291
02:15:22.520 --> 02:15:31.520
It is to his best interest as a laissez to use the resource as intensively as possible in the present.

1292
02:15:31.520 --> 02:15:37.520
Hence, leasing also depletes natural resources excessively.

1293
02:15:38.520 --> 02:15:44.520
In contrast, if private individuals were to own all the lands and resources,

1294
02:15:44.520 --> 02:15:51.520
then it would be to the owner's interest to maximize the present value of each resource.

1295
02:15:51.520 --> 02:15:58.520
Excessive depletion of the resource would lower its capital value on the market.

1296
02:15:58.520 --> 02:16:03.520
Against the preservation of the capital value of the resource as a whole,

1297
02:16:03.520 --> 02:16:09.520
the resource owner balances the income to be presently obtained from its use.

1298
02:16:09.520 --> 02:16:17.520
The balance is decided, Ceteris Paribus, by the time preference and the other preferences of the market.

1299
02:16:17.520 --> 02:16:18.860
of the Market.

1300
02:16:18.860 --> 02:16:22.480
High demand for the product increases the value

1301
02:16:22.480 --> 02:16:26.940
of the resource and thereby stimulates its preservation,

1302
02:16:26.940 --> 02:16:30.660
investment in it and exploration for it.

1303
02:16:30.660 --> 02:16:34.860
High cost sources of supply will now be tapped,

1304
02:16:34.860 --> 02:16:38.280
thus further increasing the effective supply

1305
02:16:38.280 --> 02:16:40.940
of the product on the market.

1306
02:16:40.940 --> 02:16:45.940
If private individuals can only use but not own the land,

1307
02:16:45.940 --> 02:16:53.940
and the balance is destroyed and the government has provided an impetus to excessive present use.

1308
02:16:54.940 --> 02:17:03.940
Not only is the announced aim of conservation laws to aid the future at the expense of the present illegitimate

1309
02:17:03.940 --> 02:17:12.940
and the arguments in favor of it invalid, but compulsory conservation would not achieve even this goal,

1310
02:17:12.940 --> 02:17:19.100
for the Future is already provided for through present saving and investment.

1311
02:17:19.100 --> 02:17:26.420
Conservation laws will indeed coerce greater investment in natural resources, using other

1312
02:17:26.420 --> 02:17:33.460
resources to maintain renewable resources and forcing a greater inventory of stock in

1313
02:17:33.460 --> 02:17:35.700
depletable resources.

1314
02:17:35.700 --> 02:17:42.380
But total investment is determined by the time preferences of individuals, and these

1315
02:17:42.380 --> 02:17:45.180
These will not have changed.

1316
02:17:45.180 --> 02:17:51.340
Conservation laws, then, do not really increase total provisions for the future.

1317
02:17:51.340 --> 02:17:59.300
They merely shift investment from capital goods, buildings, etc., to natural resources.

1318
02:17:59.300 --> 02:18:07.220
They thereby impose an inefficient and distorted investment pattern on the economy.

1319
02:18:07.220 --> 02:18:15.760
Given the nature and consequences of conservation laws, why should anyone advocate this legislation?

1320
02:18:15.760 --> 02:18:20.160
Conservation laws, we must note, have a very practical aspect.

1321
02:18:20.160 --> 02:18:27.560
They restrict production, that is, the use of a resource by force, and thereby create

1322
02:18:27.560 --> 02:18:34.460
a monopolistic privilege, which leads to a restrictionist price to owners of this resource

1323
02:18:34.460 --> 02:18:37.860
or of substitutes for it.

1324
02:18:37.860 --> 02:18:44.780
Conservation laws can be more effective monopolizers than tariffs because, as we have seen, tariffs

1325
02:18:44.780 --> 02:18:51.220
permit new entry and unlimited production by domestic competitors.

1326
02:18:51.220 --> 02:18:56.060
There is another similarity between tariffs and conservation laws.

1327
02:18:56.060 --> 02:19:03.500
Both aim at national self-sufficiency and both try to foster national or local industries

1328
02:19:03.500 --> 02:19:08.060
by Coercive Intervention in the Free Market.

1329
02:19:08.060 --> 02:19:14.340
Conservation laws, on the other hand, serve to cartelize a land factor and absolutely

1330
02:19:14.340 --> 02:19:22.140
restrict production, thereby helping to ensure permanent and continuing monopoly gains for

1331
02:19:22.140 --> 02:19:23.540
the owners.

1332
02:19:23.540 --> 02:19:29.140
These monopoly gains, of course, will tend to be capitalized into an increase in the

1333
02:19:29.140 --> 02:19:31.940
capital value of the land.

1334
02:19:31.940 --> 02:19:38.200
The person who later buys the monopolized factor, then, will simply earn the going rate

1335
02:19:38.200 --> 02:19:44.500
of interest on his investment, even though the monopoly gain will be included in his

1336
02:19:44.500 --> 02:19:46.540
earnings.

1337
02:19:46.540 --> 02:19:53.480
Conservation laws, therefore, must also be looked upon as grants of monopolistic privilege.

1338
02:19:53.480 --> 02:20:00.060
One outstanding example is the American government's policy, since the end of the 19th century,

1339
02:20:00.060 --> 02:20:09.000
of Reserving Vast Tracts of the Public Domain, that is, the government's land holdings.

1340
02:20:09.000 --> 02:20:14.740
Reserving means that the government keeps land under its ownership and abandons its

1341
02:20:14.740 --> 02:20:21.180
earlier policy of keeping the domain open for homesteading by private owners.

1342
02:20:21.180 --> 02:20:28.540
Forests, in particular, have been reserved, ostensibly for the purpose of conservation.

1343
02:20:28.540 --> 02:20:34.520
What is the effect of withholding huge tracts of timber land from production?

1344
02:20:34.520 --> 02:20:41.940
It is to confer a monopolistic privilege and therefore a restrictionist price on competing

1345
02:20:41.940 --> 02:20:46.660
private lands and on competing timber.

1346
02:20:46.660 --> 02:20:53.300
We have seen that limiting the labor supply confers a restrictionist wage on the privileged

1347
02:20:53.300 --> 02:21:00.820
Workers, while the workers pushed out by union wage rates or by licenses or immigration laws

1348
02:21:00.820 --> 02:21:06.780
must find lower-paying and less-value productive jobs elsewhere.

1349
02:21:06.780 --> 02:21:13.560
A monopoly or quasi-monopoly privilege for the production of capital or consumer goods,

1350
02:21:13.560 --> 02:21:20.720
on the other hand, may or may not confer a monopoly price, depending on the configuration

1351
02:21:20.720 --> 02:21:29.120
of the demand for the individual firms as well as their costs. Since a firm can contract or expand

1352
02:21:29.120 --> 02:21:36.240
its supply at will, it sets its supply with the knowledge that lowering output to achieve a

1353
02:21:36.240 --> 02:21:45.440
monopoly price must also lower the total amount of goods sold. On the free market, the demand for

1354
02:21:45.440 --> 02:21:53.680
Each firm in equilibrium must be elastic above the equilibrium price, otherwise the firm would

1355
02:21:53.680 --> 02:22:01.280
reduce output. This does not, of course, mean that the demand for the entire industry must be

1356
02:22:01.280 --> 02:22:09.440
elastic. When we refer to a possible monopoly price, the demand consulted by each monopolistic

1357
02:22:09.440 --> 02:22:17.440
The firm is its own. The laborer need bother with no such consideration, aside from a negligible

1358
02:22:17.440 --> 02:22:25.440
variation in demands for each laborer's total hours of service. What about the privileged landowner?

1359
02:22:25.440 --> 02:22:33.200
Will he achieve a definite restrictionist or a possible monopoly price? A prime characteristic

1360
02:22:33.200 --> 02:22:41.240
of a piece of land is that it cannot be increased by labor. If it is augmentable, then it is

1361
02:22:41.240 --> 02:22:49.680
a capital good, not land. The same, in fact, applies to labor, which in all but long periods

1362
02:22:49.680 --> 02:22:57.880
of time can be regarded as fixed in its total supply, since labor in its totality cannot

1363
02:22:57.880 --> 02:23:04.880
be increased, except, as we have noted in regard to hours of work per day, government

1364
02:23:04.880 --> 02:23:12.160
restriction on the labor supply, child labor laws, immigration barriers, etc., therefore

1365
02:23:12.160 --> 02:23:18.120
confers a restrictionist wage increase on the workers remaining.

1366
02:23:18.120 --> 02:23:24.720
Capital or consumer goods can be increased or decreased so that privileged firms must

1367
02:23:24.720 --> 02:23:48.080
Another example of government creation of a monopoly gain in land has been cited by the

1368
02:23:48.080 --> 02:23:54.680
The Georgist economist Mason Gaffney City governments all over the country deliberately

1369
02:23:54.680 --> 02:24:02.640
keep dead lands off the market with the avowed purpose of protecting other land prices.

1370
02:24:02.640 --> 02:24:09.320
Gaffney cites the head of the American Society of Planning officials as advising that a vacant

1371
02:24:09.320 --> 02:24:17.240
one-third of urban land be more or less permanently removed from private ownership in order to

1372
02:24:17.240 --> 02:24:22.520
Keep Up Land Values for the Owners of the Remaining Two-Thirds.

1373
02:24:22.520 --> 02:24:29.800
Gaffney concludes, following this advice, many state and local governments avoid returning

1374
02:24:29.800 --> 02:24:33.160
tax-reverted lands to use.

1375
02:24:33.160 --> 02:24:40.840
The same is true for depleting natural resources, which cannot have their supply increased and

1376
02:24:40.840 --> 02:24:44.180
are therefore considered part of land.

1377
02:24:44.180 --> 02:24:51.060
If the government forces land or natural resources out of the market, therefore, it inevitably

1378
02:24:51.060 --> 02:24:58.260
lowers the supply available on the market, and just as inevitably confers a monopoly

1379
02:24:58.260 --> 02:25:05.300
gain and a restrictionist price on the remaining landowners or resource owners.

1380
02:25:05.300 --> 02:25:12.060
In addition to all of their other effects, conservation laws force labor to abandon good

1381
02:25:12.060 --> 02:25:33.260
Let us return to the government's policy of reserving timber lands.

1382
02:25:33.260 --> 02:25:40.620
This confers a restrictionist price and a monopoly gain on the lands remaining in use.

1383
02:25:40.620 --> 02:25:47.260
Markets are specific and do not have the same general connexity as labor markets.

1384
02:25:47.260 --> 02:25:55.460
Therefore, the restrictionist price rise is confined far more to lands that directly competed,

1385
02:25:55.460 --> 02:26:00.820
or would compete, with the withdrawn or reserved lands.

1386
02:26:00.820 --> 02:26:07.660
In the case of American conservation policy, the particular beneficiaries were, a, the

1387
02:26:07.660 --> 02:26:13.980
Land Grant Western Railroads, and b. the existing timber owners.

1388
02:26:13.980 --> 02:26:20.140
The Land Grant railroads had received vast subsidies of land from the government, not

1389
02:26:20.140 --> 02:26:28.160
only rights of way for their roads, but 15-mile tracts on either side of the line.

1390
02:26:28.160 --> 02:26:34.380
Government reservation of public lands greatly raised the price received by the railroads

1391
02:26:34.380 --> 02:26:39.500
when they later sold this land to new inhabitants of the area.

1392
02:26:39.500 --> 02:26:45.240
The railroads thus received another gift from the government, this time in the form of a

1393
02:26:45.240 --> 02:26:50.220
monopoly gain at the expense of the consumers.

1394
02:26:50.220 --> 02:26:56.060
The railroads were not ignorant of the monopolistic advantages that would be conferred upon them

1395
02:26:56.060 --> 02:26:58.180
by conservation laws.

1396
02:26:58.180 --> 02:27:04.460
In fact, the railroads were the financial angel of the entire conservation movement.

1397
02:27:04.460 --> 02:27:07.100
Thus, Louise Peffer writes,

1398
02:27:28.180 --> 02:27:34.400
Administration was financed in part by the Transcontinental Railroads and by the Burlington

1399
02:27:34.400 --> 02:27:41.880
and the Rock Island Railroads to the amount of $39,000 a year out of a total budget of

1400
02:27:41.880 --> 02:27:44.400
around $50,000.

1401
02:27:44.400 --> 02:27:51.460
The program of this association and the railroads, as announced by James J. Hill, a preeminent

1402
02:27:51.460 --> 02:27:58.260
and Railroad Magnet was almost more advanced than that of the leading conservationists.

1403
02:27:58.260 --> 02:28:06.220
Senator H.C. Hensbrough also pointed out that the railroads paid $45,000 annually to a leading

1404
02:28:06.220 --> 02:28:13.980
conservationist magazine, The Talisman, and financed the Washington Conservation Lobby.

1405
02:28:13.980 --> 02:28:21.420
The timber owners also understood the gains they would acquire from forest conservation.

1406
02:28:21.420 --> 02:28:27.940
Theodore Roosevelt himself announced that the great users of timber are themselves forwarding

1407
02:28:27.940 --> 02:28:31.340
the movement for forest preservation.

1408
02:28:31.340 --> 02:28:37.580
As one student of the problem declared, the lumber manufacturers and timber owners had

1409
02:28:37.580 --> 02:28:44.500
arrived at a harmonious understanding with Gifford Pinchot, the leader in forest conservation

1410
02:28:44.500 --> 02:28:47.180
as early as 1903.

1411
02:28:47.180 --> 02:28:53.380
In other words, the government, by withdrawing timber lands from entry and keeping them off

1412
02:28:53.380 --> 02:29:00.100
the market, would aid in appreciating the value of privately owned timber.

1413
02:29:00.100 --> 02:29:06.500
N. Patents A patent is a grant of monopoly privilege by

1414
02:29:06.500 --> 02:29:11.980
the government to first discoverers of certain types of inventions.

1415
02:29:11.980 --> 02:29:18.380
The patent was instituted in England by King Charles I as a transparent means of evading

1416
02:29:18.380 --> 02:29:24.940
the parliamentary prohibition of grants of monopoly in 1624.

1417
02:29:24.940 --> 02:29:31.180
Some defenders of patents assert that they are not monopoly privileges, but simply property

1418
02:29:31.180 --> 02:29:35.620
rights and inventions, or even in ideas.

1419
02:29:35.620 --> 02:29:43.300
And in free market or libertarian law, everyone's right to property is defended without a patent.

1420
02:29:43.300 --> 02:29:49.780
If someone has an idea or plan and produces an invention, which is then stolen from his

1421
02:29:49.780 --> 02:29:55.320
house, the stealing is an act of theft, illegal under general law.

1422
02:29:55.320 --> 02:30:02.460
On the other hand, patents actually invade the property rights of those independent discoverers

1423
02:30:02.460 --> 02:30:09.620
Inventors of an idea or an invention who happen to make the discovery after the patentee.

1424
02:30:09.620 --> 02:30:16.740
These later inventors and innovators are prevented by force from employing their own ideas and

1425
02:30:16.740 --> 02:30:18.340
their own property.

1426
02:30:18.340 --> 02:30:26.100
Furthermore, in a free society, the innovator could market his invention and stamp it copyright,

1427
02:30:26.100 --> 02:30:31.420
thereby preventing buyers from reselling the same or a duplicate product.

1428
02:30:32.460 --> 02:30:37.960
Patents, therefore, invade, rather than defend, property rights.

1429
02:30:37.960 --> 02:30:55.960
The speciousness of the argument that patents protect property rights in ideas is demonstrated by the fact that not all, but only certain types of original ideas, certain types of innovations, are considered legally patentable.

1430
02:30:55.960 --> 02:31:01.960
Numerous new ideas are never treated as subject to patent grants.

1431
02:31:01.960 --> 02:31:13.960
Another common argument for patents is that society simply makes a contract with the inventor to purchase his secret, so that society will have use of it.

1432
02:31:13.960 --> 02:31:20.960
But in the first place, society could then pay a straight subsidy or price to the inventor.

1433
02:31:20.960 --> 02:31:27.960
It does not have to prevent all later inventors from marketing their inventions in this field.

1434
02:31:27.960 --> 02:31:51.640
The Most Popular Argument for Patents Among Economists is the utilitarian one that a patent

1435
02:31:51.640 --> 02:31:58.080
for a certain number of years is necessary to encourage a sufficient amount of research

1436
02:31:58.080 --> 02:32:05.840
expenditure toward inventions and innovations in new processes and products.

1437
02:32:05.840 --> 02:32:12.840
This is a curious argument, because the question immediately arises, by what standard do you

1438
02:32:12.840 --> 02:32:20.760
judge that research expenditures are too much, too little, or just about enough?

1439
02:32:20.760 --> 02:32:27.160
Uses in society are limited, and they may be used for countless alternative ends.

1440
02:32:27.160 --> 02:32:33.320
By what standards does one determine that certain uses are excessive, that certain uses

1441
02:32:33.320 --> 02:32:36.360
are insufficient, etc.?

1442
02:32:36.360 --> 02:32:42.320
Someone observes that there is little investment in Arizona, but a great deal in Pennsylvania.

1443
02:32:42.320 --> 02:32:47.400
He indignantly asserts that Arizona deserves more investment.

1444
02:32:47.400 --> 02:32:52.160
But what standards can he use to justify such a statement?

1445
02:32:52.160 --> 02:32:59.800
The market does have a rational standard, the highest money incomes and highest profits,

1446
02:32:59.800 --> 02:33:05.240
for these may be achieved only through maximum service to the consumers.

1447
02:33:05.240 --> 02:33:12.920
This principle of maximum service to consumers and producers alike, that is, to everybody,

1448
02:33:12.920 --> 02:33:20.120
Learns the seemingly mysterious market allocation of resources, how much to devote to one firm

1449
02:33:20.120 --> 02:33:27.840
or another, to one area or another, to the present or the future, to one good or another,

1450
02:33:27.840 --> 02:33:31.760
to research rather than other forms of investment.

1451
02:33:31.760 --> 02:33:38.260
The observer who criticizes this allocation can have no rational standards for decision,

1452
02:33:38.260 --> 02:33:41.600
he has only his arbitrary whim.

1453
02:33:41.600 --> 02:33:48.260
This is particularly true of criticism of production relations in contrast to interference

1454
02:33:48.260 --> 02:33:50.500
with consumption.

1455
02:33:50.500 --> 02:33:58.220
Someone who chides consumers for buying too many cosmetics may have, rightly or wrongly,

1456
02:33:58.220 --> 02:34:01.280
some rational basis for his criticism.

1457
02:34:01.280 --> 02:34:07.300
But someone who thinks that more or less of a certain resource should be used in a certain

1458
02:34:07.300 --> 02:34:14.660
in Manor, or that business firms are too large or too small, or that too much or too little

1459
02:34:14.660 --> 02:34:22.140
is spent on research or is invested in a new machine, can have no rational basis for his

1460
02:34:22.140 --> 02:34:23.140
criticism.

1461
02:34:23.140 --> 02:34:30.340
Businesses, in short, are producing for a market guided by the valuations of consumers

1462
02:34:30.340 --> 02:34:32.740
on that market.

1463
02:34:32.740 --> 02:34:39.460
Observers may criticize the ultimate valuations of consumers if they choose, although if they

1464
02:34:39.460 --> 02:34:46.600
interfere with consumption based on these valuations they impose a loss of utility upon

1465
02:34:46.600 --> 02:34:54.420
the consumers, but they cannot legitimately criticize the means, the allocations of factors

1466
02:34:54.420 --> 02:34:58.500
by which these ends are served.

1467
02:34:58.500 --> 02:35:06.240
All funds are limited, as are all other resources, and they must be allocated to various uses,

1468
02:35:06.240 --> 02:35:09.740
one of which is research expenditures.

1469
02:35:09.740 --> 02:35:16.140
On the market, rational decisions are made with regard to setting research expenditures

1470
02:35:16.140 --> 02:35:22.460
in accordance with the best entrepreneurial expectations of future returns.

1471
02:35:22.460 --> 02:35:29.340
To subsidize research expenditures by coercion would restrict the satisfaction of consumers

1472
02:35:29.340 --> 02:35:32.980
and producers on the market.

1473
02:35:32.980 --> 02:35:39.260
Many advocates of patents believe that the ordinary competitive processes of the market

1474
02:35:39.260 --> 02:35:46.260
do not sufficiently encourage the adoption of new processes, and that therefore innovations

1475
02:35:46.260 --> 02:35:50.140
must be coercively promoted by the government.

1476
02:35:50.140 --> 02:35:56.860
But the market decides on the rate of introduction of new processes, just as it decides on the

1477
02:35:56.860 --> 02:36:01.420
rate of industrialization of a new geographic area.

1478
02:36:01.420 --> 02:36:07.580
In fact, this argument for patents is very similar to the infant industry argument for

1479
02:36:07.580 --> 02:36:15.640
tariffs, that market procedures are not sufficient to permit the introduction of worthy new processes.

1480
02:36:15.640 --> 02:36:22.240
And again, the answer is the same, that people must balance the superior productivity of the

1481
02:36:22.240 --> 02:36:29.440
new processes against the cost of installing them, that is, against the advantage possessed

1482
02:36:29.440 --> 02:36:34.720
by the old process in being already in existence.

1483
02:36:34.720 --> 02:36:41.160
Conferring special coercive privileges upon innovation would needlessly scrap valuable

1484
02:36:41.160 --> 02:37:08.520
Patents Distort the Allocation of Factors on the Type of Research Being Conducted.

1485
02:37:08.520 --> 02:37:15.040
For while it is true that the first discoverer benefits from the privilege, it is also true

1486
02:37:15.040 --> 02:37:22.640
that his competitors are excluded from production in the area of the patent for many years,

1487
02:37:22.640 --> 02:37:29.440
and since a later patent can build on an earlier related one in the same field, competitors

1488
02:37:29.440 --> 02:37:35.920
can often be discouraged indefinitely from further research expenditures in the general

1489
02:37:35.920 --> 02:37:38.560
area covered by the patent.

1490
02:37:38.560 --> 02:37:44.960
Moreover, the patentee himself is discouraged from engaging in further research in this

1491
02:37:44.960 --> 02:37:51.520
field for the privilege permits him to rest on his laurels for the entire period of the

1492
02:37:51.520 --> 02:37:57.720
patent with the assurance that no competitor can trespass on his domain.

1493
02:37:57.720 --> 02:38:02.440
The competitive spur to further research is eliminated.

1494
02:38:02.440 --> 02:38:10.720
Research expenditures, therefore, are overstimulated in the early stages before anyone has a patent,

1495
02:38:10.720 --> 02:38:16.440
and unduly restricted in the period after the patent is received.

1496
02:38:16.440 --> 02:38:22.640
In addition, some inventions are considered patentable, while others are not.

1497
02:38:22.640 --> 02:38:29.640
The patent system thus has the further effect of artificially stimulating research expenditures

1498
02:38:29.640 --> 02:38:36.500
in the patentable areas, while artificially restricting research in the non-patentable

1499
02:38:36.500 --> 02:38:38.580
areas.

1500
02:38:38.580 --> 02:38:46.160
As Arnold Plant summed up the problem of competitive research expenditures and innovations, neither

1501
02:38:46.160 --> 02:38:53.380
can it be assumed that inventors would cease to be employed if entrepreneurs lost the monopoly

1502
02:38:53.380 --> 02:38:56.460
over the use of their inventions.

1503
02:38:56.460 --> 02:39:01.900
Businesses employ them today for the production of non-patentable inventions, and they do

1504
02:39:01.900 --> 02:39:07.220
not do so merely for the profit which priority secures.

1505
02:39:07.220 --> 02:39:13.900
In active competition, no business can afford to lag behind its competitors.

1506
02:39:13.900 --> 02:39:19.540
The reputation of a firm depends upon its ability to keep ahead, to be first in the

1507
02:39:19.540 --> 02:39:25.540
with new improvements in its products and new reductions in their prices.

1508
02:39:25.540 --> 02:39:39.540
Finally, of course, the market itself provides an easy and effective course for those who feel that there are not enough expenditures being made in certain directions on the free market.

1509
02:39:39.540 --> 02:39:43.540
They are free to make these expenditures themselves.

1510
02:39:43.540 --> 02:39:49.380
Those who would like to see more inventions made and exploited are at liberty to join

1511
02:39:49.380 --> 02:39:54.280
together and subsidize such efforts in any way they think best.

1512
02:39:54.280 --> 02:40:01.180
In doing so, they would, as consumers, add resources to the research and invention business,

1513
02:40:01.180 --> 02:40:08.660
and they would not then be forcing other consumers to lose utility by conferring monopoly grants

1514
02:40:08.660 --> 02:40:12.240
and distorting the allocation of the market.

1515
02:40:12.240 --> 02:40:18.480
Their voluntary expenditures would become part of the market and help to express its

1516
02:40:18.480 --> 02:40:25.560
ultimate consumer valuations. Furthermore, later inventors would not be restricted. The

1517
02:40:25.560 --> 02:40:31.800
friends of invention could accomplish their aims without calling in the state and imposing

1518
02:40:31.800 --> 02:40:36.040
losses on the mass of consumers.

1519
02:40:36.040 --> 02:40:43.960
Patents like any monopoly grant confer a privilege on one and restrict the entry of others, thereby

1520
02:40:43.960 --> 02:40:48.760
distorting the freely competitive pattern of industry.

1521
02:40:48.760 --> 02:40:54.640
If the product is sufficiently demanded by the public, the patentee will be able to achieve

1522
02:40:54.640 --> 02:40:56.640
a monopoly price.

1523
02:40:56.640 --> 02:41:03.760
Patentees, instead of marketing their invention themselves, may elect either to, one, sell

1524
02:41:03.760 --> 02:41:10.760
sell their privilege to another, or, two, keep the patent privilege but sell licenses

1525
02:41:10.760 --> 02:41:15.360
to other firms, permitting them to market the invention.

1526
02:41:15.360 --> 02:41:20.960
The patent privilege thereby becomes a capitalized monopoly gain.

1527
02:41:20.960 --> 02:41:28.360
It will tend to sell at the price that capitalizes the expected future monopoly gain to be derived

1528
02:41:28.360 --> 02:41:29.960
from it.

1529
02:41:29.960 --> 02:41:44.960
General licensing is equivalent to renting capital, and a license will tend to sell at a price equal to the discounted sum of the rental income that the patent will earn for the period of the license.

1530
02:41:44.960 --> 02:41:56.960
A system of general licensing is equivalent to a tax on the use of the new process, except that the patentee receives the tax instead of the government.

1531
02:41:56.960 --> 02:42:03.200
Tax restricts production in comparison with the free market, thereby raising the price

1532
02:42:03.200 --> 02:42:07.900
of the product and reducing the consumer's standard of living.

1533
02:42:07.900 --> 02:42:14.700
It also distorts the allocation of resources, keeping factors out of these processes and

1534
02:42:14.700 --> 02:42:20.160
forcing them to enter less value-productive fields.

1535
02:42:20.160 --> 02:42:26.520
Most current critics of patents direct their fire not at the patents themselves, but at

1536
02:42:26.520 --> 02:42:30.820
Alledged Monopolistic Abuses in their use.

1537
02:42:30.820 --> 02:42:37.320
They fail to realize that the patent itself is the monopoly, and that, when someone is

1538
02:42:37.320 --> 02:42:43.860
granted a monopoly privilege, it should occasion neither surprise nor indignation when he makes

1539
02:42:43.860 --> 02:42:46.240
full use of it.

1540
02:42:46.240 --> 02:42:48.240
O.

1541
02:42:48.240 --> 02:42:52.480
Franchises and Public Utilities

1542
02:42:52.480 --> 02:42:58.480
Franchises are generally grants of permission by the government for the use of its streets.

1543
02:42:58.480 --> 02:43:06.080
Where the franchises are exclusive or restrictive, they are grants of monopoly or quasi-monopoly

1544
02:43:06.080 --> 02:43:07.280
privilege.

1545
02:43:07.280 --> 02:43:14.320
Where they are general and not exclusive, however, they cannot be called monopolistic.

1546
02:43:14.320 --> 02:43:20.480
For the franchise question is complicated by the fact that the government owns the streets

1547
02:43:20.480 --> 02:43:25.320
and therefore must give permission before anyone uses them.

1548
02:43:25.320 --> 02:43:32.080
In a truly free market, of course, streets would be privately, not governmentally owned,

1549
02:43:32.080 --> 02:43:36.520
and the problem of franchises would not arise.

1550
02:43:36.520 --> 02:43:42.140
The fact that the government must give permission for the use of its streets has been cited

1551
02:43:42.140 --> 02:43:49.440
to justify stringent government regulations of public utilities, many of which, like water

1552
02:43:49.440 --> 02:44:01.680
The regulations are then treated as a voluntary quid pro quo, but to do so overlooks the fact

1553
02:44:01.680 --> 02:44:09.440
that governmental ownership of the streets is itself a permanent act of intervention.

1554
02:44:09.440 --> 02:44:16.720
Regulation of public utilities or of any other industry discourages investment in these industries,

1555
02:44:16.720 --> 02:44:23.600
thereby depriving consumers of the best satisfaction of their wants, for it distorts the resource

1556
02:44:23.600 --> 02:44:26.620
allocations of the free market.

1557
02:44:26.620 --> 02:44:33.160
Prices set below the free market create an artificial shortage of the utility service.

1558
02:44:33.160 --> 02:44:38.960
Prices set above those determined by the free market impose restrictions and a monopoly

1559
02:44:38.960 --> 02:44:41.980
price on the consumers.

1560
02:44:41.980 --> 02:44:48.480
Good rates of return exempt the utility from the free play of market forces and impose

1561
02:44:48.480 --> 02:44:54.240
burdens on the consumers by distorting market allocations.

1562
02:44:54.240 --> 02:44:59.840
The very term, public utility, furthermore, is an absurd one.

1563
02:44:59.840 --> 02:45:06.320
Every good is useful to the public, and almost every good, if we take a large enough chunk

1564
02:45:06.320 --> 02:45:11.120
of supply as the unit, may be considered necessary.

1565
02:45:11.120 --> 02:45:20.360
Any designation of a few industries as public utilities is completely arbitrary and unjustified.

1566
02:45:20.360 --> 02:45:24.760
P. The Right of Eminent Domain

1567
02:45:24.760 --> 02:45:31.300
In contrast to the franchise, which may be made general and non-exclusive as long as

1568
02:45:31.300 --> 02:45:38.120
the central organization of force continues to own the streets, the right of eminent domain

1569
02:45:38.120 --> 02:45:41.220
could not easily be made general.

1570
02:45:41.220 --> 02:45:45.200
If it were, then chaos would truly ensue.

1571
02:45:45.200 --> 02:45:51.420
For when the government confers a privilege of eminent domain, as it has done on railroads

1572
02:45:51.420 --> 02:45:57.660
and many other businesses, it has virtually granted a license for theft.

1573
02:45:57.660 --> 02:46:04.480
If everyone had the right of eminent domain, every man would be legally empowered to compel

1574
02:46:04.480 --> 02:46:08.600
the sale of property that he wanted to buy.

1575
02:46:08.600 --> 02:46:15.120
If A were compelled to sell property to B at the latter's will and vice versa, then

1576
02:46:15.120 --> 02:46:18.940
neither could be called the owner of his own property.

1577
02:46:18.940 --> 02:46:25.140
The entire system of private property would then be scrapped in favor of a society of

1578
02:46:25.140 --> 02:46:27.440
mutual plunder.

1579
02:46:27.440 --> 02:46:34.460
Saving and accumulation of property for one's self and one's heirs would be severely discouraged,

1580
02:46:34.460 --> 02:46:41.720
and rampant plunder would cut ever more sharply into whatever property remained.

1581
02:46:41.720 --> 02:46:46.940
Civilization would soon revert to barbarism, and the standards of living of the barbarian

1582
02:46:46.940 --> 02:46:49.260
would prevail.

1583
02:46:49.260 --> 02:46:55.740
The government itself is the original holder of the right of eminent domain, and the fact

1584
02:46:55.740 --> 02:47:02.180
that the government can despoil any property holder at will is evidence that in current

1585
02:47:02.180 --> 02:47:08.660
Society, the right to private property is only flimsily established.

1586
02:47:08.660 --> 02:47:15.380
Certainly no one can say that the inviolability of private property is protected by the government,

1587
02:47:15.380 --> 02:47:20.400
and when the government confers this power on a particular business, it is conferring

1588
02:47:20.400 --> 02:47:25.780
upon it the special privilege of taking property by force.

1589
02:47:25.780 --> 02:47:31.980
Evidently, the use of this privilege greatly distorts the structure of production.

1590
02:47:31.980 --> 02:47:38.900
Instead of being determined by voluntary exchange, self-ownership and efficient satisfaction

1591
02:47:38.900 --> 02:47:45.460
of consumer wants, prices and the allocation of productive resources are now determined

1592
02:47:45.460 --> 02:47:49.040
by brute force and government favor.

1593
02:47:49.040 --> 02:47:55.620
The result is an overextension of resources, a malinvestment in the privileged firm or

1594
02:47:55.620 --> 02:48:01.160
industry and an underinvestment in other firms and industries.

1595
02:48:01.160 --> 02:48:07.480
At any given time, as we have stressed, there is a limited amount of capital, a limited

1596
02:48:07.480 --> 02:48:13.200
supply of all resources, that can be devoted to investment.

1597
02:48:13.200 --> 02:48:20.440
Compulsory increase in investment in one field can be achieved only by an arbitrary decline

1598
02:48:20.440 --> 02:48:23.600
in investment in other fields.

1599
02:48:23.600 --> 02:48:29.440
Inevitably someone will point to the plight of the railroad or highway company that must

1600
02:48:29.440 --> 02:48:36.820
pay extortionate rates to the man who merely owns the property along the way.

1601
02:48:36.820 --> 02:48:43.460
Yet these same people do not complain, and properly so, of the fact that property values

1602
02:48:43.460 --> 02:48:51.020
have enormously increased in downtown areas of cities, thus benefiting someone who merely

1603
02:48:51.020 --> 02:48:53.020
happens to own them.

1604
02:48:53.020 --> 02:48:59.360
The fact is that all property is available to everyone who finds or buys it.

1605
02:48:59.360 --> 02:49:06.760
If the property owner in these cases is penalized because of his speculation, then all entrepreneurs

1606
02:49:06.760 --> 02:49:12.280
must be penalized for their correct forecasting of future events.

1607
02:49:12.280 --> 02:49:20.040
Furthermore, economic progress imputes gains to original factors, land and labor.

1608
02:49:20.040 --> 02:49:26.600
To render land artificially cheap is to lead to its overuse, and the government is then

1609
02:49:26.600 --> 02:49:40.320
Many advocates of eminent domain contend that society, in the last analysis, has the right

1610
02:49:40.320 --> 02:49:44.960
to use any land for its purposes.

1611
02:49:44.960 --> 02:49:50.960
Without knowing it, they have thus conceded the validity of a major Henry Georgist plank,

1612
02:49:50.960 --> 02:49:58.520
that every person, by virtue of his birth, has a right to his aliquot share of God-given

1613
02:49:58.520 --> 02:50:05.520
land, except that the eminent domain thesis is on even shakier ground, since the Georgists

1614
02:50:05.520 --> 02:50:12.240
at least exempt, or try to exempt from the social claim, the improvements that the owner

1615
02:50:12.240 --> 02:50:13.720
has made.

1616
02:50:13.720 --> 02:50:20.780
Actually, however, since society does not exist as an entity, it is impossible for each

1617
02:50:20.780 --> 02:50:28.420
Each individual to translate his theoretical aliquot right into real ownership.

1618
02:50:28.420 --> 02:50:34.820
As Benjamin R. Tucker pointed out years ago, the Georgist equal rights thesis, or eminent

1619
02:50:34.820 --> 02:50:43.500
domain, leads logically not to a single tax, but to each individual's right to appropriate

1620
02:50:43.500 --> 02:50:49.140
his theoretical share of the value of everybody else's land.

1621
02:50:49.140 --> 02:50:55.860
The state's appropriation of this value then becomes sheer robbery of the other individual

1622
02:50:55.860 --> 02:51:00.580
claims, rather than of just the claim of the landowner.

1623
02:51:00.580 --> 02:51:08.380
Therefore, the ownership of the property devolves not on everybody, but on the government, or

1624
02:51:08.380 --> 02:51:13.180
on those individuals whom it specially privileges.

1625
02:51:13.180 --> 02:51:18.140
Q. Bribery of Government Officials

1626
02:51:18.140 --> 02:51:23.500
Because it is illegal, bribery of government officials receives practically no mention

1627
02:51:23.500 --> 02:51:26.020
in economic works.

1628
02:51:26.020 --> 02:51:32.020
Economic science, however, should analyze all aspects of mutual exchange, whether these

1629
02:51:32.020 --> 02:51:35.380
exchanges are legal or illegal.

1630
02:51:35.380 --> 02:51:42.260
We have seen that bribery of a private firm is not actually bribery at all, but simply

1631
02:51:42.260 --> 02:51:46.300
payment of the market price for the product.

1632
02:51:46.300 --> 02:51:51.800
The theory of government officials is also a price for the payment of a service.

1633
02:51:51.800 --> 02:51:53.560
What is this service?

1634
02:51:53.560 --> 02:52:00.160
It is the failure to enforce the government edict as it applies to the particular person

1635
02:52:00.160 --> 02:52:02.060
paying the bribe.

1636
02:52:02.060 --> 02:52:09.120
In short, the acceptance of a bribe is equivalent to the sale of permission to engage in a certain

1637
02:52:09.120 --> 02:52:11.500
line of business.

1638
02:52:11.500 --> 02:52:17.980
The purchase of a bribe is therefore praxeologically identical with the sale of a government license

1639
02:52:17.980 --> 02:52:23.820
to engage in a business or occupation, and the economic effects are similar to those

1640
02:52:23.820 --> 02:52:25.260
of a license.

1641
02:52:25.260 --> 02:52:30.500
There is no economic difference between the purchase of a government permission to operate

1642
02:52:30.500 --> 02:52:36.020
by buying a license or by paying government officials informally.

1643
02:52:36.020 --> 02:52:42.920
What the briber receives, therefore, is an informal, oral license to operate.

1644
02:52:42.920 --> 02:52:48.700
The fact that different government officials receive the money in the two cases is irrelevant

1645
02:52:48.700 --> 02:52:51.200
to our discussion.

1646
02:52:51.200 --> 02:52:57.780
The extent to which an informal license acts as a grant of monopolistic privilege depends

1647
02:52:57.780 --> 02:53:01.240
on the conditions under which it is granted.

1648
02:53:01.240 --> 02:53:07.460
In some instances, the official accepts a bribe by one person and, in effect, grants

1649
02:53:07.460 --> 02:53:12.360
him a monopoly in a particular area or occupation.

1650
02:53:12.360 --> 02:53:18.040
In other cases, the official may grant the informal license to anybody who is willing

1651
02:53:18.040 --> 02:53:20.820
to pay the necessary price.

1652
02:53:20.820 --> 02:53:28.580
The former is an example of a clear monopoly grant followed by a possible monopoly price.

1653
02:53:28.580 --> 02:53:35.820
In the latter case, the bribe acts as a lump sum tax, penalizing poorer competitors who

1654
02:53:35.820 --> 02:53:37.680
cannot pay.

1655
02:53:37.680 --> 02:53:41.420
They are forced out of business by the bribe system.

1656
02:53:41.420 --> 02:53:47.340
However, we must remember that bribery is a consequence of the outlawing of a certain

1657
02:53:47.340 --> 02:53:54.380
line of production, and therefore that it serves to mitigate some of the loss of utility

1658
02:53:54.380 --> 02:53:59.580
Imposed on Consumers and Producers by the Government Prohibition

1659
02:53:59.580 --> 02:54:06.700
Given the state of outlawry, bribery is the chief means for the market to reassert itself.

1660
02:54:06.700 --> 02:54:12.220
Bribery moves the economy closer to the free market situation.

1661
02:54:12.220 --> 02:54:20.380
The same is true of an official license. A firm's payment for a license is the only means for it to exist.

1662
02:54:20.380 --> 02:54:27.740
A licensed firm cannot be stamped as a willing party to the monopolistic privilege unless it had

1663
02:54:27.740 --> 02:54:34.860
helped to lobby for the licensing law's establishment or continuance, as very often happens.

1664
02:54:35.980 --> 02:54:42.700
In fact, we must distinguish between an invasive bribe and a defensive bribe.

1665
02:54:43.260 --> 02:54:49.100
The defensive bribe is what we have been discussing, that is, the purchase of a permission

1666
02:54:49.100 --> 02:54:53.260
Operation to operate after an activity is outlawed.

1667
02:54:53.260 --> 02:55:01.020
On the other hand, a bribe to attain an exclusive or quasi-exclusive permission, barring others

1668
02:55:01.020 --> 02:55:07.940
from the field, is an example of an invasive bribe, a payment for a grant of monopolistic

1669
02:55:07.940 --> 02:55:09.300
privilege.

1670
02:55:09.300 --> 02:55:14.000
The former is a significant movement toward the free market.

1671
02:55:14.000 --> 02:55:18.460
The latter is a movement away from it.

1672
02:55:18.460 --> 02:55:22.980
Are Policy Toward Monopoly

1673
02:55:22.980 --> 02:55:29.940
Economic historians often inquire about the extent and importance of monopoly in the economy.

1674
02:55:29.940 --> 02:55:35.860
Almost all of this inquiry has been misdirected because the concept of monopoly has never

1675
02:55:35.860 --> 02:55:38.420
been cogently defined.

1676
02:55:38.420 --> 02:55:46.260
In this chapter we have traced types of monopoly and quasi-monopoly and their economic effects.

1677
02:55:46.260 --> 02:55:53.900
It is clear that the term monopoly properly applies only to governmental grants of privilege,

1678
02:55:53.900 --> 02:55:56.100
direct and indirect.

1679
02:55:56.100 --> 02:56:02.600
Truly gauging the extent of monopoly in an economy means studying the degree and extent

1680
02:56:02.600 --> 02:56:09.780
of monopoly and quasi-monopoly privilege that the government has granted.

1681
02:56:09.780 --> 02:56:17.060
An opinion has been traditionally anti-monopoly. Yet it is clearly not only pointless but deeply

1682
02:56:17.060 --> 02:56:25.380
ironic to call upon the government to pursue a positive anti-monopoly policy. Evidently,

1683
02:56:25.380 --> 02:56:33.280
all that is necessary to abolish monopoly is that the government abolish its own creations.

1684
02:56:33.280 --> 02:56:39.980
It is certainly true that in many, if not all, cases, the privileged businesses or laborers

1685
02:56:39.980 --> 02:56:44.540
had themselves agitated for the monopolistic grant.

1686
02:56:44.540 --> 02:56:52.120
But it is still true that they could not become quasi-monopolists except through the intervention

1687
02:56:52.120 --> 02:56:53.540
of the state.

1688
02:56:53.540 --> 02:56:59.220
It is therefore the action of the state that must bear prime responsibility.

1689
02:56:59.220 --> 02:57:09.220
Historians, however, will go sadly astray if they ignore the monopolistic motivation for passage of such measures by the state.

1690
02:57:09.220 --> 02:57:22.220
Historians who are in favor of the free market often neglect this problem and thus leave themselves wide open to opposition charges that they are apologists for monopoly capital.

1691
02:57:22.220 --> 02:57:29.420
Actually, of course, advocates of the free market are pro-business, as they are pro any

1692
02:57:29.420 --> 02:57:36.000
voluntary relationship, only when it is carried on in the free market.

1693
02:57:36.000 --> 02:57:42.240
They oppose governmental grants of monopolistic privilege to businesses or others, for to

1694
02:57:42.240 --> 02:57:49.020
this extent, business is no longer free, but a partner of the coercive state.

1695
02:57:49.020 --> 02:57:57.920
Finally, the question may be raised, are corporations themselves mere grants of monopoly privilege?

1696
02:57:57.920 --> 02:58:03.540
Some advocates of the free market were persuaded to accept this view by Walter Lipman's The

1697
02:58:03.540 --> 02:58:05.500
Good Society.

1698
02:58:05.500 --> 02:58:11.100
It should be clear from previous discussion, however, that corporations are not at all

1699
02:58:11.100 --> 02:58:13.460
monopolistic privileges.

1700
02:58:13.460 --> 02:58:18.300
They are free associations of individuals pooling their capital.

1701
02:58:18.300 --> 02:58:24.900
On the purely free market such men would simply announce to their creditors that their liability

1702
02:58:24.900 --> 02:58:32.220
is limited to the capital specifically invested in the corporation, and that beyond this their

1703
02:58:32.220 --> 02:58:39.280
personal funds are not liable for debts, as they would be under a partnership arrangement.

1704
02:58:39.280 --> 02:58:45.720
It then rests with the sellers and lenders to this corporation to decide whether or not

1705
02:58:45.720 --> 02:58:47.720
The Theory of Money and Credit

1706
02:59:15.720 --> 02:59:28.720
The limited liability for torts is the illegitimate conferring of a special privilege, but this does not loom large among the total liabilities of any corporation.

1707
02:59:28.720 --> 02:59:32.720
Appendix A. On Private Coinage.

1708
02:59:32.720 --> 02:59:36.720
The common erroneous phrasing of Gresham's law,

1709
02:59:36.720 --> 02:59:44.720
bad money drives out good money, has often been used to attack the concept of private coinage as unworkable,

1710
02:59:44.720 --> 02:59:50.720
and thereby to defend the state's age-old monopolization of the minting business.

1711
02:59:50.720 --> 02:59:59.720
As we have seen, however, Gresham's law applies to the effect of government policy, not to the free market.

1712
02:59:59.720 --> 03:00:13.720
The argument most often advanced against private coinage is that the public would be burdened by fraudulent coin and would be forced to test coins frequently for their weight and fineness.

1713
03:00:13.720 --> 03:00:19.720
The government's stamp on the coin is supposed to certify its fineness and weight.

1714
03:00:19.720 --> 03:00:25.720
The long record of the abuse of this certification by governments is well known.

1715
03:00:25.720 --> 03:00:30.120
Moreover, the argument is hardly unique to the mitting business.

1716
03:00:30.120 --> 03:00:32.280
It proves far too much.

1717
03:00:32.280 --> 03:00:38.840
In the first place, those mitters who fraudulently certify the weight or fineness of coins will

1718
03:00:38.840 --> 03:00:44.580
be prosecuted for fraud, just as defrauders are prosecuted now.

1719
03:00:44.580 --> 03:00:49.880
Those who counterfeit the certifications of well-established private mitters will meet

1720
03:00:49.880 --> 03:00:54.280
a fate similar to those who counterfeit money today.

1721
03:00:54.280 --> 03:00:59.520
Numerous products of business depend upon their weight and purity.

1722
03:00:59.520 --> 03:01:04.320
People will either safeguard their wealth by testing the weight and purity of their

1723
03:01:04.320 --> 03:01:10.960
coins as they do their money bullion, or they will mint their coins with private minters

1724
03:01:10.960 --> 03:01:16.040
who have established a reputation for probity and efficiency.

1725
03:01:16.040 --> 03:01:22.360
These minters will place their stamps on the coins, and the best minters will soon come

1726
03:01:22.360 --> 03:01:52.360
The Theory of Money and Credit

1727
03:01:52.360 --> 03:02:22.360
The mistake would be of greater import than an error involving coins, yet prudence and the process of market selection of the best firms, coupled with legal prosecution against fraud, have facilitated the purchase and use of the most delicate machine tools, for example, without any suggestion that the government must nationalize the machine tool industry in order to ensure the quality of the products.

1728
03:02:22.360 --> 03:02:36.360
Another argument against private coinage is that standardizing the denominations of coin is more convenient than permitting the diversity of coins that would ensue under a free system.

1729
03:02:36.360 --> 03:02:49.360
The answer is that if the market finds standardization more convenient, private mints will be led by consumer demand to confine their minting to certain standard denominations.

1730
03:02:49.360 --> 03:02:57.720
On the other hand, if greater variety is preferred, consumers will demand and obtain a more diverse

1731
03:02:57.720 --> 03:02:59.840
range of coins.

1732
03:02:59.840 --> 03:03:05.640
Under the government mintage monopoly, the desires of consumers for various denominations

1733
03:03:05.640 --> 03:03:14.000
are ignored, and the standardization is compulsory, rather than in accord with public demand.

1734
03:03:14.000 --> 03:03:19.520
Appendix B, Coercion and Lebensraum

1735
03:03:19.520 --> 03:03:25.440
Tariffs and immigration barriers as a cause of war may be thought far afield from our

1736
03:03:25.440 --> 03:03:30.920
study, but actually this relationship may be analyzed praxeologically.

1737
03:03:30.920 --> 03:03:38.160
A tariff imposed by Government A prevents an exporter residing under Government B from

1738
03:03:38.160 --> 03:03:39.920
making a sale.

1739
03:03:39.920 --> 03:03:47.000
Furthermore, an immigration barrier imposed by Government A prevents a resident of B from

1740
03:03:47.000 --> 03:03:48.520
migrating.

1741
03:03:48.520 --> 03:03:53.240
Both of these impositions are affected by coercion.

1742
03:03:53.240 --> 03:03:57.360
Tariffs as a prelude to war have often been discussed.

1743
03:03:57.360 --> 03:04:01.480
Less understood is the Lebensraum argument.

1744
03:04:01.480 --> 03:04:08.320
Overpopulation of one particular country, in so far as it is not the result of a voluntary

1745
03:04:08.320 --> 03:04:14.200
Every choice to remain in the homeland at the cost of a lower standard of living is

1746
03:04:14.200 --> 03:04:20.440
always the result of an immigration barrier imposed by another country.

1747
03:04:20.440 --> 03:04:26.520
It may be thought that this barrier is purely a domestic one, but is it?

1748
03:04:26.520 --> 03:04:33.920
By what right does the government of a territory proclaim the power to keep other people away?

1749
03:04:33.920 --> 03:04:40.640
Under a purely free market system, only individual property owners have the right to keep people

1750
03:04:40.640 --> 03:04:42.360
off their property.

1751
03:04:42.360 --> 03:04:48.720
The government's power rests on the implicit assumption that the government owns all the

1752
03:04:48.720 --> 03:04:51.420
territory that it rules.

1753
03:04:51.420 --> 03:04:56.840
Only then can the government keep people out of that territory.

1754
03:04:56.840 --> 03:05:03.880
Caught in an insoluble contradiction are those believers in the free market and private property

1755
03:05:03.880 --> 03:05:11.400
who still uphold immigration barriers. They can do so only if they concede that the state

1756
03:05:11.400 --> 03:05:18.360
is the owner of all property, but in that case they cannot have true private property in their

1757
03:05:18.360 --> 03:05:26.040
system at all. In a truly free market system, such as we have outlined, only first cultivators

1758
03:05:26.040 --> 03:05:32.920
would have title to unowned property. Property that has never been used would remain unowned

1759
03:05:32.920 --> 03:05:41.000
until someone used it. At present, the state owns all unused property, but it is clear that this is

1760
03:05:41.000 --> 03:05:48.120
conquest incompatible with the free market. In a truly free market, for example, it would be

1761
03:05:48.120 --> 03:05:55.720
inconceivable that an Australian agency could arise, laying claim to ownership over the vast

1762
03:05:55.720 --> 03:06:03.080
tracts of unused land on that continent and using force to prevent people from other areas

1763
03:06:03.080 --> 03:06:06.620
from entering and cultivating that land.

1764
03:06:06.620 --> 03:06:13.120
It would also be inconceivable that a state could keep people from other areas out of

1765
03:06:13.120 --> 03:06:18.440
property that the domestic property owner wishes them to use.

1766
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No one but the individual property owner himself would have sovereignty over a piece of property.