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NOTE Monopoly and Anti-Trust, Monopsony

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Okay, I guess we're ready to start.

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This is the ninth and penultimate session of the Radical Austrianism, Radical Libertarianism,

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a Steve Berger seminar with Walter Block.

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This time I'm reading it, so I'm getting it right.

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Usually I mess that one up.

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Could we please start with a moment of silence?

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Okay, before I start on today's topic, which is monopoly,

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And I'm going to stick in a few other points on which I make some radical analyses.

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I wanted to take care of a few housekeeping details, questions that arose from the last session.

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One of the questions that was raised from Noah was,

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Is it possible that if you had a full free enterprise economy, there would be less equality, more inequality?

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Remember, the way we had it was here was economic freedom, and here was inequality,

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And there was some sort of line like that, namely, the more economic freedom, the less inequality, but could it have been U-shaped?

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And I was thinking about that, and it seems to me that it's praxeological that it couldn't be,

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because if the only thing that's varying is economic freedom and coercion, and we know that economic freedom benefits both parties to it,

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Then, it has to be, I think. I'll have to think more about that, but that's my inclination.

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However, we're now talking about statistics, and when you have statistics, you have GDP, which has problems, and you don't have ceteris paribus.

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There are other things that are going on. For example, suppose you had a society that was totally and completely economically free,

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Only you had a frequency distribution of IQ, something like this, two tails, you had very stupid people and very smart people and that was free, a free country like that and then over here you had an IQ and here's the frequency, where everyone was the same, there were virtually no people in these little tails.

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Well, now, the free economy would tend toward equality, but you're starting off with such unequal people that you might not get there.

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And this might end up being more equal, provided it wasn't too unfree. You get the point?

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And the statistics that we did don't even think of taking into account anything like that.

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It's politically incorrect to think about IQ, I suppose, and certainly the data doesn't consider it.

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So I think it's a praxeological point, and I speak on the correction as I do on everything, but you can't count on the statistics.

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The second point that came up in the coffee clutch after the session was somebody falls off the 25th story of a building and he lands on the 15th story and he's holding a flagpole.

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and now he wants to crawl his way back down into the apartment and you know

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get in the elevator and go upstairs and stay away from the balcony and some

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little old lady comes out with a shotgun and says drop you know let go of the

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flagpole and drop to your death and some critics of libertarianism try to say

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well if you're really a libertarian you have to let go and the point I was

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is making is that libertarianism does not answer those questions as to what you should do it only

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asks is the question of is it justified to use violence against you if you don't so if the little

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old lady shoots him because he's not letting go is she a murderer and my answer was no now the

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objection from Adam was well you really are skirting the issue it's common law says not only does she

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I'm not that knowledgeable about common law to say whether he's right or not, but my thinking still is that libertarianism is a very narrow concept.

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It only asks under what conditions is force justified or legitimate punishment.

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And I don't think it can be pushed to answer the question of whether you should let go or not.

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I think the only question or the only issue that it can answer is if the old lady shoots him for trespassing, she tells him gently to leave go, but you know there's no real gentle way to do that.

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Is she guilty of murder? And I think the answer is no.

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One more point. After the last session, we went from 2 to 3.30, and then we had discussion, dialogue from 3.30 to 5, at which time I am ashamed to say that I punked out, I'm getting old and feeble.

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When I was a young man, I would have kept up until 10 at night or kept up as long as there were anyone interested, but I'm getting weak.

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Week. The point I wanted to make, you ladies might not know this, but on the men's rooms of the nation there's a graffiti, it says the jobs not over until the paperwork's done, well the same thing here, the jobs not over until the paperwork's done, it's all well and good to sit around and talk about these things, but I want to see some of you writing up these things, I want to see in the next year or two in the Journal of Libertarian Studies or in the Quarterly Journal of Austrian Economics some papers

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Published by you, that you got based on discussions here or published elsewhere

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and if you do please send them to me if they're published elsewhere and I don't

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see them. So what I'm saying is that this session is is a very good session I'm

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very happy to be part of it but let's not let it end with just this session. Let's

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take these ideas and run with them, work with them, write about them, publish them,

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spread them out to other people. Okay, enough for housekeeping details. I now

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want to launch myself into the issue of monopoly and I want to read to you

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something that just appeared on the Mises web the other day. It's from some

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person, I don't know who he is, from Uruguay and he says as follows, Uruguay

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The United States is a highly state regulated country. The state has monopolies over several services including telecommunications.

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This monopolies, his English isn't too good, I'll read it as he wrote it, are consecrated by the Constitution of the Republic itself.

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A couple of politicians promote the idea of privatizing several state owned companies without deregulating and freeing the market in those areas.

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They say that a monopoly is better if it is in the hands of private owned companies.

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My common sense tells me that no monopoly is good, but that a legal monopoly granted by the state to a privately owned company is the worst of evil, I guess he means the worst of all evils.

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I believe that in fact private monopolies are the least of all evils.

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Let me stop there even though he goes on further and read again that last sentence.

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I believe, in fact, that private monopolies are the least of evil, or the least bad.

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Can there be such a thing as a private monopoly?

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Well, for the mainstream, there most certainly can be.

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And even for some Austrians, there can be.

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One of my first publications in the Journal of Libertarian Studies,

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What I did is I took Murray Rothbard's chapter 10 of Man, Economy and State,

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which is the most brilliant piece ever written, I think, on monopoly,

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where he says that there can't be any such thing as a private monopoly.

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And I used it to criticize two other Austrians who said that there could be in resources.

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And these two other Austrians were Mises and Kirzner.

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So the point I'm making is that even a Mises and even a Kirzner can make an error on this issue of monopoly.

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Taking the neoclassical view, which counts noses.

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For the neoclassicists or the modern economists, it all depends upon how many firms there are in an industry.

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If there are many, many, many firms in an industry including a whole bunch of other criteria like homogeneous goods and each company is small and there's no entrepreneurship and there's no profit and we're at equilibrium and there's the same price for everybody,

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a whole bunch of other criteria, if that occurs then it's a thing called perfect competition.

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but if any deviation occurs in these very stringent and wild-eyed assumptions

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then you have monopolistic elements and if you have a few companies then you

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have oligopoly, if you have two companies you have duopoly, I guess three

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companies would be triopoly and one company would be monopoly, so for them

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For them, the determinant of whether there's a monopoly or not, you just sort of look and see how many firms there are in an industry.

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For the Austrians, monopoly came about as an exclusive grant of government privilege.

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In the old days, the Duke of, I don't know, London would fight the good battle and he'd be given the monopoly of salt.

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The Duke of Edinburgh would fight a good battle against the French and he'd be given the monopoly of candles.

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What this means, if anyone else sells candles in Edinburgh, they cut off his head or put him in jail or whatever the penalty was because the monopoly was given to this guy.

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That's what monopoly means.

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There are also problems in terms of defining the industry.

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The more narrowly you define the industry, the more monopoly you get.

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The more widely you define the industry, the less monopoly you get.

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For example, if you are defending against an attack of monopoly, you're a defense attorney.

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What you want to do is define the relevant industry as all beverages.

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A medium interpretation of the industry would be soft drinks.

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A narrower definition would be colas. There are fewer colas than all soft drinks, which includes milk or orange juice or, I don't know, wine coolers or whatever.

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But what's right? What is the industry? Well, it's all arbitrary.

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The whole thing is totally arbitrary and capricious as to what the industry is. Everything competes with everything.

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Things that are totally unrelated compete for the consumer dollar.

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For example, I'm very rich. I just got a million dollars. I want to buy something.

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I can buy a sailboat or a piano.

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Now, you don't think of sailboats and pianos being in the same industry, do you?

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And yet, that might well be the choice that I'm considering between those two things.

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So I suppose if you want to be a reasonable person you just define everything as the industry in which case there can never be monopoly but that too is silly because the whole thing is messed up because what we ought to be focusing on is competition and not number of competitors.

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Any of you ever been in a boxing ring, fighting someone?

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There are only two, well there are three people in the ring, including the referee, but there are only two fighters.

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And yet it's very competitive.

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On the other hand, there are thousands of taxi cabs in a big city, and that's a monopoly.

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Because if you start riding around and offering to take people for a ride, you know, they'll throw you in jail.

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So the number of competitors is a very silly way to look at monopoly, and yet that is the key element of what they do.

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Let me talk about free entry, which is a very important element of competition.

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The Austrian way of seeing whether a industry is competitive is can you enter it without going to jail or without having to get permissions that take ten years and hundreds of thousands of dollars.

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Milton Friedman isn't one of my favorite economists but on this issue with the occupational licensure for doctors he's absolutely magnificent.

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One of his chapters in the book Capitalism and Freedom, he goes over the case of doctors and the reason he picks doctors is this restriction on entry, if there's any case for restriction on entry, it's with doctors.

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That's the most powerful case and if he can obliterate that case, he can take down this argument for monopoly quite a bit.

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The situation with doctors is between 1928 and 1932.

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The number of new doctors in the U.S. was about the same as from 1933 to 1937.

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Well, what's wrong with that?

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What's wrong with that is that from 1933 to 1937, there were a lot of Jews who were running away from Austria.

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And some of the best doctors were Jewish Austrian doctors at that time.

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There are a lot of other brilliant people who came over from Austria, and one of the reasons we're called Austrian economics is because a lot of other people came, not just economists, but physicists, chemists, what have you, mathematicians, and they all got jobs, but the doctors couldn't get jobs. Why?

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Because to become a doctor in the US then, and even now, you have to take the exam in English, plus you have to do a whole bunch of other things.

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And it wasn't an easy test in English, it was so hard that they couldn't become doctors.

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Now, the justification on the part of the AMA for this horrendous incident was,

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well, you know, if you have a doctor who can't speak English, you know, you go and you say,

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my elbow hurts and he starts operating on your knee and we can't have that.

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But a moment's thought will convince us that the real reason that these AMA types were trying to keep the doctors out had nothing to do with customer care, which is what they say, but everything to do with not allowing competition.

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It's very similar to get off the point for a second with regard to the butter and the margarine people.

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When margarine first came out, it was sort of a yucky color, sort of like my shirt, sort of a yellowish, whitish, grayish color, and nobody was buying it.

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So what the margarine people wanted to do was to color it yellow.

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And it wasn't fraud because they would put on the package, you know, this is colored yellow or something like that.

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Now guess which states were the most adamant in making sure that they couldn't do this?

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I'll give you a hint. It's the states where they had cows.

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Because, and obviously, they couldn't argue, well, you know, we don't want a margin colorized because it's competition for butter.

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They couldn't say that. They said, oh, no, no, this is, you know, protect the public's health or something like that.

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And you get a continual situation like that where you have entry restrictions that have nothing to do with protecting the public, but they use that as an excuse.

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Well now back to doctors. First of all there are unconscious patients and with

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regard to unconscious patients the language doesn't matter if you're from

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Korea or from Vienna and you see an unconscious patient he's not going to

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speak to you anyway so certainly they could doctors who can't speak a word of

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English can treat unconscious patients. Secondly they could treat patients of

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of their own nationality.

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Surely there would be some Viennese people who were patients

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and the Viennese doctors who couldn't speak English

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could do quite fine in German or whatever they speak there.

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And a similar thing occurred when a lot of Cubans

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came over to this country, I guess in the 70s or the 80s

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or a little later on in the 30s.

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All the Cuban intellectuals could get jobs

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except for doctors.

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And if there was a Cuban patient and a Cuban doctor

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And neither of whom could speak anything, well, so what?

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And the third point is translators.

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That's why God invented translators.

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So that, you know, you could hire a nurse who could speak bilingually and that would

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be that.

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So the reason for precluding entry was to keep prices up and it had nothing to do with

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protecting the public.

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It was an attempt to monopolize.

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It's not that there was one doctor, but we're not now in the arena of neoclassical economics.

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From the Austrian point of view, there's no monopolization as long as there's no restriction on entry and we don't care how many doctors there are.

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At this point, sometimes the antitrust laws preclude exclusive dealing like a deal where, you know, I'm Walmart and I say to you,

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Maximilian, you're handy because you're in the front row, that'll teach you, that if you deal with Rosa Maria's company, I won't deal with you.

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Exclusive dealing, and this is a per se violation.

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The reductio ad absurdum of this is that this is really an attack on monogamous marriage.

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Because doesn't the monogamous marriage, each spouse say to the other,

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you must deal with me exclusively in certain areas, mainly sex.

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I mean, you can, you know, talk to other people, but in sex you can only deal with me

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and I'll only deal with you, exclusive dealing.

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Well, if taken literally, this would fall afoul of the monopoly laws

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because, you know, you're restricting trade, you know, a certain trade with other people if you're a monogamously married person.

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And I think it's good to see Carrie-Anne isn't the only one who does reductios.

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I do it, too. And I think this is a very good one. It's true.

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It's a totally different area that they didn't mean to.

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You know, here they're talking about companies and here we're talking about spouses.

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But the law is the law.

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And if the law is an ass over here, and it's clear to see it, then the law is an ass everywhere.

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Okay, what else do we have?

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Well, there are three players here.

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There are the lefties, there are the moderate Chicagoites, and there are the Austrians on the right.

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And I want to compare and contrast them with regard to their attitude of government regulation of business, and is it in favor of the consumer or what's going on?

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Well, with regard to the lefties, the Ted Kennedys, etc., the Hillary Clintons, business necessarily or almost always exploits the consumer.

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and the government steps in on the white horse with the lance to rescue the

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consumer from the depredations of business. The Chicago School says it's

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more complicated. What they say is yes there is exploitation of consumers by

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business and government has to step in however they get a little more

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They're not sophisticated and they have this thing called capture theory.

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Capture theory is government is regulating business, but the way you get ahead in government and business

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is sometimes you go through this escalator situation.

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For example, you're a government regulator.

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Let's say you're a lawyer in the antitrust division and then you're making $80,000.

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What you do is you get a job in the company that you used to be regulating and they'll pay you a lot more, $150,000,

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because you now know and can now advise them as to what to do to keep off the regulators, keep the regulators off their back.

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And then you work there for a few years and then you get a job much higher in the government,

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Maybe not with much more money, although the opportunity for graft and then for rising even higher in business is there.

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So the careers of a lot of these people is sometimes they're regulators and sometimes they're regulatees.

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And the two of them get into bed with each other, namely business captures government, even though government is a good guy.

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Business captures them because, you know, the regulator now thinks, well, you know, I really want to get a job with these guys.

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So, I'm going to go a little easy on them, okay?

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Now, there's this guy, Kolko.

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There's an interesting story about Kolko, Gabriel Kolko.

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He takes the view with regard to the Food and Drug Administration

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and the Safety Commissions and all the alphabet soup kind of stuff

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that started in the progressive period in the 1890s and 1880s

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in the early part of the 20th century, what he says is no, no, no, capture theory is not quite right.

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What really happened was that the reason we have all these alphabet soup regulatory agencies was that

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big business was being overtaken by small, more competitive, more rivalistic competitors

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And the big business called for regulation by the government, not to stop them, but to stop their competitors.

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And the meat inspection acts are one example that stick out in my mind.

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Swift and Armore and other meat packing companies, before the advent of the regulatory apparatus, were calling for it.

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And the reason they were calling for it is that the regulatory apparatus, first of all, they would staff it with their people.

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And secondly, there are economies of scale in filling out paperwork.

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And the big companies were better able to fill out the paperwork than their small competitors.

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So the function of this whole thing was to, you know, get rid of their small competitors.

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And COCO shows that before the advent of the regulatory agencies,

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they were losing and losing and losing market share.

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And afterward, their competitors lost the market share and they rebounded.

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So this worked.

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So this is a very sophisticated, cynical way of looking at government regulation of business.

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Now there's an interesting story behind Coco. He was a Marxist, an out-and-out Marxist, good old commie.

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And the libertarians would invite him to their conferences because this supported their view.

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And Coco came. And he came once or twice, but he's a bright guy, and he realized, you know,

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that the libertarians were using him for their own nefarious purposes.

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So he refused to come because he hated liberty because he was a commie.

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He's a very interesting kind of fellow. Murray used to cite him and quote him all over the place.

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There's another... The main advocate of capture theory was Stigler.

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So here you have the anomalous situation of a commie being better than a free enterprise

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There's another attack on Stigler, and it has to do with advertising, and here it comes from Kirzner, and here Kirzner is very much on the side of the good guys.

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Again, there are three views on information.

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This is the side of the of the good guys again there are three views on information the most left-wing view the totally wrong view is that information ought to be free because in perfect competition is defined that information is free and knowledge is you know there's no problem everybody knows everything so if everybody knows everything what's the function of advertising well the function of advertising is to screw the public

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So that's the most left-wing view, a total suspicion of all advertising.

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Stigler had a more moderate view, similar to the capture theory, only now we're in advertising.

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And what Stigler's view was, was here is time spent in search.

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The idea is you move to a new city and you need to buy a car, you need to get an apartment,

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If you live in a new city and you need to buy a car, you need to get an apartment, you need to find out where the best restaurants are, things like that, and here is money.

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And what you do is you search, and there are marginal costs of search.

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The more you search for an apartment without buying one, the more you have to live in a motel and live out of a suitcase, and it becomes more and more of a pain in the neck as time goes on, right?

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On the other hand, there are declining marginal benefits from search because, you know, the first day you see a house for $100,000.

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The second day you see the same house for $91,000, so you gain $9,000.

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The second day you see the same house, same to you, it might be a little different, a little different neighborhood, but for you it's of equal value.

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So now it's say, so let's say we go 100, 91, 85, so the marginal benefit here was 9, now the marginal benefit is 6, right?

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You get where I'm coming from?

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And eventually, so that's how the marginal benefit curve is going down and eventually you stop searching right here,

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Because the marginal benefits from future search are now less than the marginal costs,

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you search up to this point x because the expected value of another day of search is positive and then you stop searching there.

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Okay, this is not totally crazy. There's some coherence in this.

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Although Austrians don't like cost curves because for us cost is alternative or opportunity costs.

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The next best option foregone by doing anything?

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You people are sitting here, what's your next best option or opportunity?

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I don't know, it could be sleeping, it could be bicycling, it could be swimming,

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it could be taking a, well, probably not taking a walk because it's pretty hot out there,

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but it could be, you know, some of you weirdos might want to take a walk.

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So no one else knows anyone else's cost and to objectify it in this way is problematic.

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But, forgetting about that, we're moderates here, you know, we're supportive, we're open, not really, but what the heck, we can fool them.

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This is not totally crazy, but what Stigler gets from this is that the only kind of advertising, you see, the left is saying no advertising at all is justified.

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What you get from this analysis, or what Stigler gets from this analysis, is that there is some advertising that's justified,

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but the only advertising that's justified is name, rank and serial number kind of advertising.

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How many camshafts does the car have? What's the mileage per gallon? What's the guarantee?

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It's the, I don't know, the speed from 0 to 60 or whatever, but to put a girl on the hood of the car and sort of imply that if you buy the car you get the girl, that advertising is called motivational advertising and Stigler, great free enterpriser, comes out against that.

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Now here's where Kirzner and Mises come in and they do a magnificent job and I'll introduce this with a joke as is my want.

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There's a mule skinner, a neophyte apprentice mule skinner, he's trying to get the mule to do something and the mule is just standing there.

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So the master mule skinner or the master mule trainer comes along and they ask him, well, what can we do?

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And he takes his sledgehammer and he bops the mule over the head and he practically kills the mule.

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And the apprentice said, well, why'd you do that? And the answer is, first, how to get his attention.

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Well, Kirzner is all into first getting people's attention. How do you get their attention?

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There are a lot of messages out there. Well, one way to get their attention is to put a half naked beautiful woman or beautiful man on a tractor or a car or wearing a suit or something like that.

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So the function of that advertising is to get people's attention. It's got nothing to do with the Stiglirian search for information.

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You see, the search for information only works if you know what you're searching for.

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Oh, you're searching for a house, you're searching for a car, you're searching for a restaurant, fine.

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But before you knew about the frisbee, were you searching for a frisbee?

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No. In order to get you to buy a frisbee, they sort of have to conk you in the head and say,

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frisbee, frisbee, slap you around and say, you know, frisbees are great.

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They have to capture your attention.

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So this is the Austrian type justification for advertising as we see it, as opposed to the Stiglerian kind of very bloodless kind of advertising where you just sort of read a manual report of the sort that an engineer would like.

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Okay, let us now get into some heavier stuff with regard to the good old monopoly diagram.

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And here I apologize for those of you who are freshmen in college and haven't had economics or people in law school that are not econ majors.

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You know, give me 10 minutes, tune out now, or maybe you can get something out of this.

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But here is the monopoly diagram. The monopoly diagram starts with average cost and you'll remember that what we said is that when marginal is above average, average rises, when marginal equals average, average is constant, and when marginal is less than average, average falls.

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Remember the the bowling averages? Okay, so here's average cost, u-shaped cost because of various things that I won't go into.

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Marginal cost has to intersect average cost at the bottom point of average cost.

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Otherwise, these three rules wouldn't hold true.

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And here we have a demand curve and the demand curve is really average revenue.

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So if that's average revenue, marginal revenue has to be below it, so it's sort of pulling it down.

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Whoops, I'm losing myself, okay?

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This would be dollar or price, and this would be quantity.

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This is the monopoly diagram, and this point is labeled C,

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because the upward part of the marginal cost curve from where it hits the average cost and above is the supply curve.

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The demand curve is this here, so where supply hits demand, that's where the perfectly competitive model will be.

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But where or where will the monopoly be?

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The monopoly will be where marginal cost hits marginal revenue.

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Yes, question?

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What did I do?

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Ah!

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Ah, thank you.

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I'm a low-tech kind of guy, I'm just sort of winging it here, although I'm better than, I beat you out in this sweepstakes.

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Thanks for letting me know, sort of like your fly is open and no one tells you.

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Okay, so where marginal revenue hits marginal cost, remember first you pick Q, and Q is based on where marginal cost equals marginal revenue.

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and then you go you pick price and the way you pick prices by going to the demand curve it's the opposite of the monopsony case which I went over two or three days ago okay so here's where marginal revenue and marginal cost hit and that's the quantity of the monopolist this is the quantity of the perfectly competitive firm here is the price of the perfectly competitive firm

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And here, you go to the demand curve, so this is the end point, and this would be the price of the monopolist.

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Those of you that are into this stuff, how many know what I'm talking about and have seen this before? Okay, about half of you.

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The case against the monopolist and in favor of the perfect competition is four.

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First of all, the competitor sells more than the monopolist.

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Why this is good? It's hard for me to say. Why should more be better than less?

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Shouldn't we look for the optimal? You know, who says that this is the optimal?

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Maybe that's the optimal. Maybe they're producing too much.

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This criticism stems from Murray's Chapter 10.

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The next is that the price that the monopolist charges is higher than the price that the competitive charges.

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And this too is bad, but why should we believe that?

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Why should a higher price be necessarily worse than a lower price?

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Surely we need an optimal price.

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Price. The third one is the deadweight loss and where is the deadweight loss? The

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deadweight loss is this little triangle and the reasoning behind the argument

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is as follows and let me say that the entire, maybe that's not right, I was

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going to say that the entire antitrust industry is predicated on this diagram

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but I don't know that that's true because I think we had antitrust before we had the diagram and this might be an apologetic for it but certainly from the economics point of view the point of view of the economist this sort of a diagram is the whole intellectual case for antitrust without this diagram there's no antitrust okay so you have the deadweight loss and what's going on with the deadweight loss before the deadweight loss I said there were four things the first is price

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or quantity, the second is quantity or price, the third is profit.

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I won't go into it, but it can be proven that the monopolist will earn profit in equilibrium and earning profit is evil.

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So that's the third criticism.

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And the fourth criticism is this thing called deadweight loss.

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What's going on here?

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Now, you remember I gave you this case with the pen and the tie.

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You know, you had the pen, I have the tie.

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You value the time more than the pen, I value the other way, we each make a profit.

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Okay.

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What these guys are saying is something the obverse of that.

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What they're saying is that if a trade doesn't take place, there's loss.

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See, Austrians only say if a trade takes place, then there's mutual gain in the ex ante sense.

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These guys are saying something very different.

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They're saying that a trade doesn't take place and the trade would be the area between QM and QC.

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If that trade does not take place, then there's a welfare loss,

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because people value the area QM to QC based on the area under the demand curve from QM to QC.

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and it only costs the area under the marginal cost curve, and therefore there's a dead weight loss.

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Let me draw this whole thing for you in a much more simpler way.

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This is the Cournot monopoly water model where you have, here is the demand curve for water, here is quantity, here's the demand curve, there's the marginal revenue curve.

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We assume that this quantity axis is also the marginal cost and the average cost because it costs you nothing.

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What you have is a water hole in the desert.

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So people come with their own cup and they dip in and you charge them for it.

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And obviously here is price.

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And here is where marginal cost hits marginal revenue.

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So this is the monopoly price and quantity.

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Thank you. So here's the price, here's the quantity, here's marginal cost equals average cost.

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Here is where the competitive industry would charge, namely it would charge at a zero price.

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The monopoly price would be up here where n is.

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Where would be the, the deadweight loss would be right here, the idea is that people value the water under that curve, it only costs that much so there's this, all this loss, it's just another way of putting it only, the curves are a little simpler.

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And what they're saying is that this distance between QM and QC, the people value at this level, it only costs this level, and by not selling it, by monopolistically withholding in order to jack up the prices, the monopolist is misallocating resources.

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Okay, now, if there were a neoclassical economist sitting in the audience, I hope and trust that he would say that this is a reasonable rendition of the theory.

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It's a short one, there's a lot more to be said about it, but I've tried to the best of my ability to say what they say.

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This is the argument of the mainstream economists, and there's a lot that's wrong with this.

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One thing that's wrong with this is the idea of cost curves.

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What cost curves are is opportunities foregone and no one can ever tell anyone's cost curves.

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More important, there is this thing, whether it's this diagram or the previous diagram,

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it doesn't matter which diagram, the problem is ICU, interpersonal comparisons utility.

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So, what is interpersonality?

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Well, first of all, before interpersonal comparison utility, what this stuff is, is utils.

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They value this, it only costs that, and there's no units of happiness.

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So, that's a problem, but it compounds it when you make it interpersonally.

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Let's suppose, let's take this case and let's take a singer, Pavarotti.

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Now, Pavarotti wants to give nine concerts a year and the anti-trust people who are on Pavarotti's case

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of being a monopolist of Pavarotti services are in effect saying, no, no, no, you have to do 12 concerts a year.

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And the reason you dirty rat paparazzi are limiting yourself to only nine is because you're trying to jack up the price

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and make a shortage for yourself so you can get more money and make profits and you're evil.

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And we're gonna, well now there are three solutions, not so much with paparazzi, but three solutions in the case of, what do you call it, antitrust.

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One is to break them up into numerous little companies so that they'll act like a perfectly competitive industry.

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This is what they were trying to do with Microsoft.

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They were saying Microsoft is too big.

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Let's break it up into 10, 15, 20 little constituent elements and then we'll move from QM to QC.

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Another one is to nationalize it because the government certainly wouldn't misallocate resources.

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This is, you know, this is a given.

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and the third is to regulate them,

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namely force the monopolist to go to M

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instead of being a rather, sorry,

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force the monopolist to go to C and get off of M.

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Each of these is highly problematic.

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I mean, if you break them up,

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you make them very inefficient

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because presumably the size that they are now

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is the optimal size.

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And if you're gonna break Microsoft into 10 or 20 companies

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or however many companies you wanna break it,

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it's not gonna be as efficient as it is now

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as shown by the fact that it is the way it is now.

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Having government take it over and run Microsoft is,

377
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I don't know, I think, haven't they learned anything

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from the belly up of the USSR in the 89?

379
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Maybe not, but you'd think they'd have learned something.

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And, you know, this regulating is economic fascism.

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Getting the government in there to say,

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look, Microsoft, or look, Walmart, or look, Burger King.

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You know, you can't... Here, we'll show you how to do it.

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I mean, that's grotesque.

385
00:43:23.560 --> 00:43:27.240
And yet, this is the left-wing view.

386
00:43:28.640 --> 00:43:31.400
The Chicagoites, as sophisticated as they are,

387
00:43:31.400 --> 00:43:33.000
have one further twist.

388
00:43:33.000 --> 00:43:35.280
And it's an improvement over the left-wing

389
00:43:35.280 --> 00:43:36.960
part of the profession.

390
00:43:36.960 --> 00:43:38.280
Now, what's their schtick?

391
00:43:38.280 --> 00:43:41.880
Their schtick is tut-tut-tut, not so fast.

392
00:43:43.320 --> 00:43:46.080
We are not justified in either regulating,

393
00:43:46.080 --> 00:43:49.480
breaking up or nationalizing or anti-trusting in any way,

394
00:43:49.480 --> 00:43:53.080
unless a following condition is met, namely,

395
00:43:53.080 --> 00:43:54.680
there are costs of anti-trust.

396
00:43:56.320 --> 00:43:58.760
You have to have lawyers, you have to have accountants,

397
00:43:58.760 --> 00:44:00.720
you have to have economists,

398
00:44:00.720 --> 00:44:04.120
you have to have buildings for them to discuss these things.

399
00:44:05.680 --> 00:44:07.840
There are costs of government operation.

400
00:44:07.840 --> 00:44:10.280
Notice how sophisticated they are.

401
00:44:10.280 --> 00:44:14.640
And anti-trust is only justified if those costs are less

402
00:44:14.640 --> 00:44:16.240
Then the cost of the deadweight loss.

403
00:44:17.720 --> 00:44:19.280
You get that, that striped area?

404
00:44:20.840 --> 00:44:24.680
You see that this is a full employment law for economists,

405
00:44:24.680 --> 00:44:27.640
because who else is gonna be doing all these calculations?

406
00:44:28.680 --> 00:44:30.680
Economists and lawyers and you know,

407
00:44:30.680 --> 00:44:35.680
the Chicago School will get a lot of jobs for its adherence.

408
00:44:35.680 --> 00:44:37.600
And you can see that this is an improvement

409
00:44:37.600 --> 00:44:41.200
over the unsophisticated antitrust.

410
00:44:41.200 --> 00:44:43.400
These, the unsophisticated antitrust doesn't take

411
00:44:43.400 --> 00:44:48.400
into a cost doesn't take into account the costs

412
00:44:48.400 --> 00:44:53.400
of having an antitrust institution, the Chicago people do.

413
00:44:55.400 --> 00:44:58.800
But from the Austrian point of view, this is all silly.

414
00:44:58.800 --> 00:45:02.680
This diagram is dead from the neck up.

415
00:45:02.680 --> 00:45:05.340
I gave you my Monopoly joke, remember that one

416
00:45:05.340 --> 00:45:07.180
with the three guys with the wristwatch

417
00:45:07.180 --> 00:45:09.320
and selling high, lower and the same,

418
00:45:09.320 --> 00:45:11.360
and you go to jail no matter what you do?

419
00:45:11.360 --> 00:45:14.160
The whole thing is nonsense on stilts.

420
00:45:14.160 --> 00:45:17.160
There's no reason to calculate deadweight loss costs,

421
00:45:17.160 --> 00:45:18.800
which are made up entirely.

422
00:45:19.720 --> 00:45:21.680
And there's no reason to calculate the costs

423
00:45:21.680 --> 00:45:23.880
of anything else and then to compare them

424
00:45:23.880 --> 00:45:26.220
and then to have antitrust here and not there.

425
00:45:27.720 --> 00:45:31.840
Let me give you another version of this.

426
00:45:31.840 --> 00:45:35.280
Here's a diagram from an article of mine

427
00:45:35.280 --> 00:45:39.840
where I repeat the diagram of, what's his name?

428
00:45:39.840 --> 00:45:52.840
Oh, before I get to that, remember we had this monopsony business and what the monopsony argument was, was an attempt to undermine the Austrian view of minimum wage.

429
00:45:52.840 --> 00:45:59.840
The Austrian view of minimum wage is if you have a minimum wage, you'll move up into the left name where you'll have unemployment and they were saying no, no, no.

430
00:45:59.840 --> 00:46:02.840
If you start from M, you can get in here.

431
00:46:02.840 --> 00:46:19.840
Well, the same arguments that I've just applied against the monopoly, you know, the fact that it's interpersonal comparisons of utility and you've got these made-up cost curves and all, and the deadweight loss business applies to the monopsony case as well.

432
00:46:19.840 --> 00:46:31.840
Okay, now let me get a Bork, my man Bork, who was supposedly going to be a Supreme Court judge, but he got Borked.

433
00:46:31.840 --> 00:46:39.840
Okay, here is an article of mine, it's called Total Repeal of Antitrust.

434
00:46:39.840 --> 00:46:57.840
So it's my article, but as you can see, the source is his book, Antitrust Paradox Policy at War with Itself, whoops, I went too far, here we go.

435
00:46:57.840 --> 00:47:06.840
Okay, what's going on with Bork? What's going on with Bork is he's saying, okay, look, here is a perfectly competitive industry.

436
00:47:06.840 --> 00:47:11.840
The issue is, will Bork allow two companies to merge?

437
00:47:11.840 --> 00:47:16.840
Okay, notice the chutzpah here, he's going to decide whether they can merge or not.

438
00:47:16.840 --> 00:47:24.840
Okay, so what's going on here is, originally you have an average cost curve 1, which is high,

439
00:47:24.840 --> 00:47:28.840
compared to the later one when they merge and they get some efficiency.

440
00:47:28.840 --> 00:47:34.840
And also, they're at the point that I've been calling C, this is the point C.

441
00:47:34.840 --> 00:47:48.840
Point C. When they merge, they become a monopoly. Okay? You following me? But their average cost curves fall.

442
00:47:48.840 --> 00:47:58.840
So this leads, gives rise to two things. One, this triangular box or this triangular triangle of deadweight loss.

443
00:47:58.840 --> 00:48:03.840
And two, it gives rise to savings because the average cost curves fall due to efficiency.

444
00:48:03.840 --> 00:48:16.840
And what Bork is going to decide, whether they can merge or not, is if this curve is bigger, or if this area is bigger than this area, then he'll let them merge, because the savings will be greater than the deadweight loss.

445
00:48:16.840 --> 00:48:24.840
On the other hand, if this triangle is bigger than this square, then he won't let them merge, because the deadweight loss will be bigger than the box.

446
00:48:24.840 --> 00:48:31.840
And if they're the same, he'll be indifferent, he won't care as the antitrust czar.

447
00:48:31.840 --> 00:48:50.840
You know, talk of how many angels can dance on the edge of a pin, this is a load of hooey, they can't measure any of this stuff, it's all philosophically illegitimate, there are no dollars, they just make it up as they go along, and that's our antitrust policy.

448
00:48:50.840 --> 00:49:01.540
Okay, let me pull something else on you people. Since you're sitting still for this, I'll load it on.

449
00:49:01.540 --> 00:49:11.360
Here is a picture of the United States. There's Florida, there's Texas, there's the rest of it,

450
00:49:11.360 --> 00:49:20.120
here's Long Island. Just so you can see I'm accurate. Oh wait, I should go like this.

451
00:49:20.120 --> 00:49:30.120
So you can see the full beauty of it, and here we have the predatory price-cutting case of Standard Oil.

452
00:49:30.120 --> 00:49:37.120
And my source on this is a guy named John McGee in the Journal of Law and Economics, which is a Chicagoite journal,

453
00:49:37.120 --> 00:49:44.120
and when they do a good job, I tip my hat to them, this was a magnificent article, and the story goes as follows.

454
00:49:44.120 --> 00:49:58.120
Here are a bunch of independent, what do you call it, oil refiners, and they're scattered all over the place.

455
00:49:58.120 --> 00:50:08.120
And you also have a bunch of standard oil people around them, and how did standard oil get its monopoly?

456
00:50:08.120 --> 00:50:12.820
The way standard oil got its monopoly was by attacking one at a time.

457
00:50:12.820 --> 00:50:23.620
So let's say we go to Texas, and what standard oil does is if it costs five bucks to do the oil,

458
00:50:23.620 --> 00:50:28.120
they sell it for two dollars, and they make a big loss.

459
00:50:28.120 --> 00:50:30.220
Where do they get the money from to keep them going?

460
00:50:30.220 --> 00:50:36.820
Well, all the other S's, the standard oils, contribute to this one and keep them going.

461
00:50:36.820 --> 00:50:41.340
And then eventually, this guy gets knocked out of the box.

462
00:50:41.340 --> 00:50:43.780
And now there's only standard oil in Texas.

463
00:50:43.780 --> 00:50:46.780
And instead of $5, they raise it to $15,

464
00:50:46.780 --> 00:50:50.700
because they're now monopolistic advantage takers.

465
00:50:50.700 --> 00:50:55.660
And now we go to Washington State, and we do the same thing.

466
00:50:55.660 --> 00:50:59.500
Only now we're a little bit more powerful because here there's no competition

467
00:50:59.500 --> 00:51:02.260
and they're making money hand over fist.

468
00:51:02.260 --> 00:51:06.140
And they contribute money to the next one.

469
00:51:06.140 --> 00:51:10.860
and then this again the the oil costs five bucks to produce and they sell it

470
00:51:10.860 --> 00:51:15.220
for two and they make a loss but they drive their competitor out of business

471
00:51:15.220 --> 00:51:20.140
and now this X is gone and they just go over the rest of the country and take

472
00:51:20.140 --> 00:51:24.060
over the whole country and that's how you get the monopoly.

473
00:51:24.060 --> 00:51:28.060
This was the argument of the

474
00:51:28.060 --> 00:51:32.380
antitrust division of the United States government in the Standard Oil case of

475
00:51:32.380 --> 00:51:34.220
1911

476
00:51:34.220 --> 00:51:41.380
And McGee says that this is wrong, it's incoherent, it's silly, it's stupid on theoretical grounds

477
00:51:41.380 --> 00:51:45.980
and then what he does is he makes an empirical survey of what really went on.

478
00:51:45.980 --> 00:51:48.940
Okay, let me take each of these in order.

479
00:51:48.940 --> 00:51:54.300
First, why is this intellectually incoherent?

480
00:51:54.300 --> 00:52:01.660
Well, one reason this is intellectually incoherent is let's get back to this first guy, this X guy in Texas.

481
00:52:01.660 --> 00:52:31.660
What this ex-guy in Texas could do, when Standard Oil first pulls it, he could say, look, he could send out circulars to all of his customers, he could say, look, Standard Oil is lowering prices way below the cost, and we can't compete with them, so what we're going to do is, not only will we shut down, but we'll be first online getting their oil at $2, and we'll put it in big tanks over here, and we advocate that all of our

482
00:52:31.660 --> 00:52:37.660
Our customers go to Standard Oil along with us, but just get behind us because we're going to be first to grab up that cheap oil.

483
00:52:37.660 --> 00:52:45.660
And then when they come to their senses, you see, before, let's say in Texas, Standard Oil and the X company were each doing 50% of the business.

484
00:52:45.660 --> 00:52:56.660
So it's not just that Standard Oil has to lose $3 a gallon or $3 a barrel or whatever it is on 50%, but now on 100% because X is shutting down.

485
00:52:56.660 --> 00:53:08.660
So they are losing money hand over fist, and everyone else is stockpiling oil, and eventually the standard oil is going to go broke, and then the X will come back in.

486
00:53:08.660 --> 00:53:25.660
Or X says, you know, if and when standard oil comes back to their senses, you know, then patronize us, we'll be back open for business, and meanwhile, we'll leave a skeleton crew on, you know, just to make sure that our apparatus doesn't rust or anything, and all of our people will be buying oil from standard oil.

487
00:53:25.660 --> 00:53:52.660
Or, another message you could send out and say, look, here's what Standard Oil is going to do, they're going to lower their prices, they're going to, you know, make a loss and then they're going to charge 15 or 20 dollars for something, surely you guys, the big consumers of oil, trucking fleets or whoever it is, you have to realize this and help us, and customers help us.

488
00:53:52.660 --> 00:53:56.660
And he can send out a message to all the other exes.

489
00:53:56.660 --> 00:54:02.660
He can say, look, right now they're coming for me, but if they succeed with me, they'll come get you, so you help me.

490
00:54:02.660 --> 00:54:07.660
So in other words, this scenario assumes utter stupidity on the part of everyone.

491
00:54:07.660 --> 00:54:12.660
And people aren't that stupid.

492
00:54:12.660 --> 00:54:20.660
Then, John Magee, I think it was 1960, 1961, this article, Standard Oil Case, very good article.

493
00:54:20.660 --> 00:54:31.660
He makes a survey. He goes around and he finds out that the reason Rockefeller got his monopoly, which we mean not a monopoly, but the reason

494
00:54:31.660 --> 00:54:42.660
Standard Oil and Rockefeller did so well, is he had innovations in refining of oil and he had mass production and he took advantage of economies of scale.

495
00:54:42.660 --> 00:54:53.660
And if there was any problem, it was that poor old John D. Rockefeller was exploited by people who would go into the business of oil refining with the express purpose of selling out to him.

496
00:54:53.660 --> 00:55:01.660
And he bought some facilities that he didn't really need, and if there was any victim, it was John D. Rockefeller.

497
00:55:01.660 --> 00:55:09.660
So this is an insight into the predatory price cutting model.

498
00:55:09.660 --> 00:55:17.660
I think no one who's read that article can ever seriously uphold this sort of a thing anymore.

499
00:55:17.660 --> 00:55:27.660
What else do I have?

500
00:55:27.660 --> 00:55:36.260
I'm now completed with my monopoly part. I have a few other things to say about economics.

501
00:55:36.260 --> 00:55:44.460
What I'll be talking about is the triangle, the Austrian triangle from the Austrian business cycle theory.

502
00:55:44.460 --> 00:56:09.460
I'll be talking about a criticism that Joe Salerno, Bill Barnett, my colleague at Loyola, and me have launched against Hans Hoppe and Murray Rothbard on the issue of the relationship between wealth and time preference and a few other economic issues.

503
00:56:09.460 --> 00:56:15.460
Okay, I'm ready with some more, why did the chicken cross the road jokes?

504
00:56:15.460 --> 00:56:22.460
Are we on? Okay. Question is, why did the chicken cross the road?

505
00:56:22.460 --> 00:56:33.460
And Bill Gates' answer is, I have just released E-Chicken 2005, which will not only cross roads, but will lay eggs.

506
00:56:33.460 --> 00:56:41.460
File your important documents and balance your checkbook and Internet Explorer is an inextricable part of e-chicken.

507
00:56:41.460 --> 00:56:49.460
Einstein, why did the chicken cross the road? Did the chicken really cross the road or did the road move beneath the chicken?

508
00:56:49.460 --> 00:57:01.460
Bill Clinton, I did not cross the road with that chicken. What do you mean by chicken? Could you please define chicken?

509
00:57:01.460 --> 00:57:07.460
Louis Farrakhan, the road you see represents the black man.

510
00:57:07.460 --> 00:57:13.460
The chicken crossed the black man in order to trample him and keep him down.

511
00:57:13.460 --> 00:57:17.460
You don't know who Louis Farrakhan is?

512
00:57:17.460 --> 00:57:21.460
This is Louis Farrakhan.

513
00:57:21.460 --> 00:57:25.460
The Bible, and God came down from the heavens and he said unto the chicken,

514
00:57:25.460 --> 00:57:32.600
The Chicken, Thou Shalt Cross the Road, and the chicken crossed the road and there was much rejoicing.

515
00:57:32.600 --> 00:57:39.840
Colonel Sanders, I missed one?

516
00:57:39.840 --> 00:57:46.540
Okay, this is the last economic section and instead of just devoting the whole thing to monopoly,

517
00:57:46.540 --> 00:57:52.340
I wanted to add on a few other things. I want to do the triangle. I want to do time preference.

518
00:57:52.340 --> 00:57:59.340
And I also haven't had enough bashing of unions, so I figured I'd just have a little more gratuitous bashing of unions.

519
00:57:59.340 --> 00:58:01.340
That's always, you know, appropriate.

520
00:58:01.340 --> 00:58:16.340
Okay, with the triangle, Bill Barnett and I, my colleague at Loyola University, New Orleans, have just done a paper that we're now searching for publishers.

521
00:58:16.340 --> 00:58:22.340
And it's a big paper, it's single-spaced, it's about 70 pages, so it's a big paper.

522
00:58:22.340 --> 00:58:30.340
We've got 35 diagrams, let's take more paper and it's been rejected because it's too long and we're not sure what to do about that.

523
00:58:30.340 --> 00:58:35.340
But what we're doing in this paper is criticizing the triangle.

524
00:58:35.340 --> 00:58:40.340
And the triangle is the key element of Austrian business cycle theory.

525
00:58:40.340 --> 00:58:49.100
The first big user of the triangle was Hayek. In our research we found other

526
00:58:49.100 --> 00:58:54.860
people that sort of use the triangle, a triangle-ish kinds of things, but Hayek is

527
00:58:54.860 --> 00:59:00.260
the first one that really got into the triangle. The next major figure who got

528
00:59:00.260 --> 00:59:03.980
into the triangle was Murray Rothbard, so our criticism of the triangle is also a

529
00:59:03.980 --> 00:59:09.780
criticism of him. The third person, I don't know that I call him a major figure,

530
00:59:09.780 --> 00:59:16.780
But he might well be, he's maybe too young yet for that, and that's Roger Garrison, who's a professor here at Auburn.

531
00:59:16.780 --> 00:59:24.780
And while I won't say that he's devoted his entire career to the triangle, I would say that his middle name is Triangle.

532
00:59:24.780 --> 00:59:34.780
And I'm sure he wouldn't take this as an insult or anything, because he has devoted a lot of his career to explicating the triangle, to improving the triangle.

533
00:59:34.780 --> 00:59:42.780
The triangle used to have time on the vertical axis and he put time on the horizontal axis and I'll be using the triangle the way he does it.

534
00:59:42.780 --> 00:59:49.780
The reason he did this, I mean he'll have to speak for himself and he'll be here next week.

535
00:59:49.780 --> 00:59:54.780
How many people from here will be here next week for the Mises University?

536
00:59:54.780 --> 01:00:00.780
Okay, well, I'm sure he'll be talking about the triangle and certainly about Austrian business cycle theory.

537
01:00:00.780 --> 01:00:09.780
I would say that if I had to pick any one person now who is alive, who is the chief macro economist of Austrian economics, it would be Roger.

538
01:00:09.780 --> 01:00:16.780
He's certainly put himself head and shoulders over other people, in my opinion, and he's done it with the triangle.

539
01:00:16.780 --> 01:00:26.780
What he has done, his contribution is to make the triangle more accessible to the mainstream, which I heartily applaud.

540
01:00:26.780 --> 01:00:29.780
I think that the mainstream needs all the help it can get.

541
01:00:29.780 --> 01:00:37.780
And if Roger can put the triangle in a format that the mainstream can appreciate, all the more power to him.

542
01:00:37.780 --> 01:00:40.780
And he's done great yeoman work in doing just that.

543
01:00:40.780 --> 01:00:43.780
They haven't converted yet, but they're on the verge.

544
01:00:43.780 --> 01:00:46.780
You know, pretty soon they'll all become Austrians.

545
01:00:46.780 --> 01:00:47.780
I'm kidding.

546
01:00:47.780 --> 01:00:50.780
So what's the deal with the triangle?

547
01:00:50.780 --> 01:00:55.780
The deal with the triangle is, here's a triangle.

548
01:00:55.780 --> 01:01:15.780
And we put dollars or price or some value thing on the vertical axis and we put time measured in this way here and what the triangle is, is this would be consumption and this would be a higher order good or a good far removed from consumption.

549
01:01:15.780 --> 01:01:31.780
The consumption, think cement or steel or some basic industry and this would be a secondary industry and a third industry and might be this is manufacturing, wholesaling, retailing and then the consumption.

550
01:01:31.780 --> 01:01:42.780
So if you take bread, bread might start with the tractor, maybe the tractor is here but before you get to the tractor you have to have iron and steel and coal and stuff like that.

551
01:01:42.780 --> 01:01:53.780
At the tractor you get a baker, a miller, a baker, Walmart, and then finally the bread becomes a consumption item.

552
01:01:53.780 --> 01:02:01.780
So this is what the triangle is. How is the triangle used? It's used to illustrate business cycle theory.

553
01:02:01.780 --> 01:02:07.780
So we start off with a sort of indeterminate triangle or an intermediate triangle.

554
01:02:07.780 --> 01:02:24.780
So we have time and money, and what happens is that, let's suppose that people want to go from the line triangle to the dotted triangle,

555
01:02:24.780 --> 01:02:34.780
which means that they want to save money, which means that they want to reduce consumption by a little bit, namely they're not consuming this little bit of consumption anymore.

556
01:02:34.780 --> 01:02:41.540
Yes, and instead the money that would have gone for the consumption goes for higher industry

557
01:02:43.220 --> 01:02:49.740
Higher order goods, goods further removed from consumption, and this is all well and good and fine and there's no problem

558
01:02:51.020 --> 01:02:59.340
However, if the source of this extra saving is not a change in time preferences, a lowering of time preferences

559
01:02:59.340 --> 01:03:03.180
people aren't as impatient for present consumption, and they're willing to defer for a

560
01:03:03.180 --> 01:03:08.180
for Tomorrow Consumption in order to invest now.

561
01:03:08.180 --> 01:03:16.180
If that's not the source of it, but rather the source of it is government artificially lowering the interest rate

562
01:03:16.180 --> 01:03:22.180
and fooling entrepreneurs into thinking that there's more saving than there really is,

563
01:03:22.180 --> 01:03:30.180
then the entrepreneurs will start investing in these higher order goods and stop investing in this consumption.

564
01:03:30.180 --> 01:03:38.180
And this will be incompatible with the underlying preferences of the consumers.

565
01:03:38.180 --> 01:03:42.180
And this is the source of the Austrian business cycle theory.

566
01:03:42.180 --> 01:03:47.180
The source of the Austrian business cycle. That's the theory.

567
01:03:47.180 --> 01:03:53.180
And there are lots of arguments pro and con about this.

568
01:03:53.180 --> 01:04:16.180
One of the arguments I've got involved with a guy at George Mason named, I forget his name, what's the guy, sorry, not Becky, no, no, on business cycle theory, he's the macro guy there, Wagner, yeah, that's it, thanks.

569
01:04:16.180 --> 01:04:21.180
I don't even know who my opponents are in debates. I'm pathetic.

570
01:04:21.180 --> 01:04:25.180
Richard Wagner, who I like and respect, but I disagree with him on this,

571
01:04:25.180 --> 01:04:28.180
he had a critique of the Austrian business cycle theory.

572
01:04:28.180 --> 01:04:33.180
And his critique was, well, if the entrepreneurs are so smart,

573
01:04:33.180 --> 01:04:40.180
why won't they catch on eventually and not invest there when the interest rate is artificially lowered?

574
01:04:40.180 --> 01:04:44.180
And the point that I made is that, well, first of all, reality is tough.

575
01:04:44.180 --> 01:04:54.180
You know, it's hard to know what the interest rate is and nobody knows this so you can't prove that and at best this could only theoretically undermine the Austrian business cycle theory.

576
01:04:54.180 --> 01:05:10.180
But in addition to artificially inducing people or misleading people into making malinvestments, according to the Austrian business cycle theory, they're also subsidizing them into doing it.

577
01:05:10.180 --> 01:05:16.180
Because when the interest rate is low, higher-order goods become more profitable.

578
01:05:16.180 --> 01:05:24.180
So it's as if they're subsidizing, you know, the optimal amount of peas and carrots is half and half, but they're subsidizing peas.

579
01:05:24.180 --> 01:05:33.180
Well, people will make peas even though it's not compatible with the underlying preferences of the people.

580
01:05:33.180 --> 01:05:37.180
Okay, this is a very short introduction to the triangle.

581
01:05:37.180 --> 01:05:47.180
The present paper that I'm involved with with Bill Barnett is a critique of using the triangle and we have 15 critiques of it.

582
01:05:47.180 --> 01:05:52.180
I'm not going to go over all of them because I want to do some other things and leave some time for questions.

583
01:05:52.180 --> 01:05:56.180
But here are some of the criticisms of the triangle.

584
01:05:56.180 --> 01:06:04.180
Bill Barnett from this paper derives the conclusion that the triangle ought to be scrapped and I don't know.

585
01:06:04.180 --> 01:06:20.180
Not that the people who did it should go to jail. We're not treating it like the minimum wage, but that it's a misleading thing and Austrian Business Cycle Theory hasn't really made any progress since 1931 when Hayek came out with Prices in Production.

586
01:06:20.180 --> 01:06:28.180
The reason is we've been mired in this triangle. My view is slightly different. I sort of have a soft spot in my heart for the triangle.

587
01:06:28.180 --> 01:06:32.480
I was introduced to Austrian business cycle theory via the triangle.

588
01:06:32.480 --> 01:06:37.280
I don't think we should completely jettison it, but I think we should be aware of its shortcomings.

589
01:06:37.280 --> 01:06:43.080
So what are the shortcomings? First of all, it's an aggritive kind of a thing.

590
01:06:43.080 --> 01:06:47.080
And Austrians are not into aggregation. That's the Keynesian thing.

591
01:06:47.080 --> 01:06:53.980
So one problem with the triangle is that it's aggritive. It takes the whole economy.

592
01:06:53.980 --> 01:06:58.980
Secondly, it's hard to measure aggregations

593
01:06:59.460 --> 01:07:01.260
and the triangle doesn't measure them.

594
01:07:02.340 --> 01:07:06.540
Third, roundaboutness is confounded with more time consuming.

595
01:07:06.540 --> 01:07:10.980
See, this dotted triangle is a more roundabout triangle.

596
01:07:10.980 --> 01:07:12.020
Let me put this in another way.

597
01:07:12.020 --> 01:07:16.720
What this axis is doing, is doing two jobs.

598
01:07:17.700 --> 01:07:21.080
One, it is measuring time, two, it is measuring,

599
01:07:21.080 --> 01:07:25.080
What do you call it? Stages of production.

600
01:07:25.080 --> 01:07:33.080
And you can't legitimately ask one axis to do two jobs.

601
01:07:33.080 --> 01:07:40.080
What about, you know, suppose that there were many stages here and there were very few stages there.

602
01:07:40.080 --> 01:07:44.080
Then you need at least two axes.

603
01:07:44.080 --> 01:08:09.080
So it's sort of a mathematical problem or a geometrical problem to ask one axis to do two jobs as this does, it asks it to do time and it asks it to do stages of production and when time and stages of production are perfectly correlated then there's no problem but if there's any deviation between the two there's some sort of mathematical error implicit here.

604
01:08:09.080 --> 01:08:20.080
Another one is that this triangle, the angle of it, is the interest rate or proportional to the interest rate.

605
01:08:20.080 --> 01:08:28.080
And the problem with it is that if you have a straight line, well a minor problem with it is that if you have compounding, then the triangle isn't a straight line.

606
01:08:28.080 --> 01:08:33.080
It's rather a curved line, but that is already being taken into account.

607
01:08:33.080 --> 01:08:36.080
People assume that problem away, I think, legitimately.

608
01:08:36.080 --> 01:08:51.080
The problem is differentiability. Any straight line is a differentiable thing and as you know the way they do demand curves, the Austrians do demand curves is in step functions because we're not into differentiation.

609
01:08:51.080 --> 01:09:00.080
There's this wonderful thing that Murray has while I'm on the subject of differentiation and this sort of gets back to monopoly.

610
01:09:00.080 --> 01:09:10.080
Here's price and here's quantity, and here's an average cost curve, and here's the bottom point of the average cost curve, which the mainstream says is the most efficient.

611
01:09:10.080 --> 01:09:18.080
And if you have a flat demand curve, the flat demand curve can hit it, and all is well.

612
01:09:18.080 --> 01:09:22.080
But you can only get a flat demand curve if you have perfect competition.

613
01:09:22.080 --> 01:09:35.780
However, if you have a U-shaped average cost curve and a point here and a downward sloping demand curve,

614
01:09:35.780 --> 01:09:43.780
the downward sloping demand curve can't be tangent to the average cost curve at the bottom point of the average cost curve, right?

615
01:09:43.780 --> 01:09:50.780
It has to be tangent to it at a point to the left of the bottom point of the average cost curve.

616
01:09:50.780 --> 01:10:02.780
Everyone follow that? Okay. So what Murray does, he says, look, this is all due to the fact that you drew the crummy average cost curve in a way that's differentiable throughout its length.

617
01:10:02.780 --> 01:10:14.780
In a way, it's a smooth curve. Suppose you drew the average cost curve in this way. It's also down with sloping.

618
01:10:14.780 --> 01:10:27.780
That's the average cost curve. Well, you can have a demand curve, not be tangent to these, you can't be tangent at a cross point, but hit the average cost curve at the bottom point of it.

619
01:10:27.780 --> 01:10:39.780
This is a brilliant reputation of, you see, the way the mainstream operates is there's a dog and there's a tail and suppose the economics is the dog and it wags the mathematical tail.

620
01:10:39.780 --> 01:10:42.780
But for those guys, it's the reverse.

621
01:10:42.780 --> 01:10:46.780
Math becomes the dog and they wag the economic tail.

622
01:10:46.780 --> 01:10:52.780
The reason they make things differentiable is so that you can have calculus and differentiation.

623
01:10:52.780 --> 01:10:56.780
But Austrians know that all human action is discrete.

624
01:10:56.780 --> 01:10:59.780
That's why you get these step functions instead of smooth curves.

625
01:10:59.780 --> 01:11:01.780
Well, the triangle is a smooth curve.

626
01:11:01.780 --> 01:11:08.780
So the triangle is making too many concessions to the mainstream mania for math.

627
01:11:08.780 --> 01:11:20.780
That's that point. Another is that the triangle cannot incorporate leisure, and this is a big problem because you could take out excess wealth in the form of leisure.

628
01:11:20.780 --> 01:11:34.780
Another is that the triangle is the wrong, what do you call it, the wrong geometrical figure to use for the Austrian business cycle theory,

629
01:11:34.780 --> 01:11:41.780
and that if you're going to use any geometrical figure for it, you can't use the triangle, rather you have to use the trapezoid.

630
01:11:41.780 --> 01:11:50.780
Why the trapezoid? Because the triangle assumes that you... Where's the triangle here? I'll draw another triangle.

631
01:11:50.780 --> 01:11:58.780
The triangle assumes you're starting from zero. See, right there, that's zero.

632
01:11:58.780 --> 01:12:03.620
You'd have to go back to the beginning of time when men were in the trees going like this and, you know,

633
01:12:03.620 --> 01:12:05.620
ooga booga, give me a banana or something.

634
01:12:07.620 --> 01:12:09.620
But in the ordinary

635
01:12:10.100 --> 01:12:17.820
situation, what you should do instead is have a trapezoid to show that you already have production going on and that would look something

636
01:12:18.940 --> 01:12:20.940
like this.

637
01:12:20.940 --> 01:12:34.940
Do you get it? In other words, here's the triangle, but it's got to be put on a trapezoid to show that you're not starting de novo.

638
01:12:34.940 --> 01:12:45.940
So this isn't a basic criticism of the triangle, but it shows that if you're going to go geometrical, triangle is wrong, it's trapezoid.

639
01:12:45.940 --> 01:12:53.940
Another one is that the triangle ignores durable capital goods. It only takes stuff that's going through.

640
01:12:53.940 --> 01:13:00.940
It has no clear role for durable capital goods that stay right where they are, like the factory.

641
01:13:00.940 --> 01:13:05.940
What about the factory? All you're doing is taking the sweater when it becomes more and more sweaterish.

642
01:13:05.940 --> 01:13:12.940
And the last one I'll do is, what's the ideal triangle?

643
01:13:12.940 --> 01:13:29.940
Well, you see, as we go from here, as we go from here to here to here to here, namely, we get, let's say we go from five to four to three to two to one.

644
01:13:29.940 --> 01:13:41.940
What are we doing? What we're depicting is a society that has a higher and higher time preference rate, higher and higher interest rate, more and more unwilling to save for the future,

645
01:13:41.940 --> 01:13:53.540
In some sense, a lousier society, if I could use, if I can conflate just for the moment while we all know what I'm doing, normative and positive, okay?

646
01:13:53.540 --> 01:14:04.260
But what's the ideal triangle? The ideal triangle is this, a very small one where we instantaneously get everything we want.

647
01:14:04.260 --> 01:14:10.660
Do you see what I'm saying? An ideal, like if I had a button and I could press the button and what kind of triangle should we have?

648
01:14:10.660 --> 01:14:15.660
We should have a triangle where there's no roundabout methods of production at all.

649
01:14:15.660 --> 01:14:17.460
Why? Because there's no need for them.

650
01:14:17.460 --> 01:14:27.460
Because I've got this magic thing here that gets us sweaters and cars like that without waiting 10 or 20 years.

651
01:14:27.460 --> 01:14:29.760
So there's some sort of incoherence here.

652
01:14:29.760 --> 01:14:34.560
On the one hand, as you go from five to four to three to two to one, you're getting worse.

653
01:14:34.560 --> 01:14:36.760
On the other hand, you're getting better.

654
01:14:36.760 --> 01:14:38.060
So which is it?

655
01:14:38.060 --> 01:14:42.060
Well, these are some problems. We've got about 15 problems with the Triangle.

656
01:14:42.060 --> 01:14:45.760
This is sort of a radical

657
01:14:45.760 --> 01:14:48.940
departure from normal Austrian economics.

658
01:14:48.940 --> 01:14:53.420
This hasn't been published yet. There's been no referees reports.

659
01:14:53.420 --> 01:14:57.060
This could all be wrong, but you know,

660
01:14:57.060 --> 01:15:01.160
that's the way knowledge progresses by people coming up with a new idea

661
01:15:01.160 --> 01:15:04.320
and running with it and seeing what happens.

662
01:15:04.320 --> 01:15:09.820
What's our alternative to the Triangle? Our alternative to the Triangle is interest rate sensitivity.

663
01:15:11.820 --> 01:15:19.820
Certain things are very interest rate sensitive, the elasticity of them with regard to the interest rate is very high,

664
01:15:19.820 --> 01:15:24.820
and that's where the source of the Austrian business cycle is, and certain things are interest rate non-sensitive,

665
01:15:24.820 --> 01:15:28.820
and doesn't have much to do with the Austrian business cycle theory.

666
01:15:28.820 --> 01:15:33.820
We went through everything that Mises has ever written and there's no triangle in Mises.

667
01:15:34.320 --> 01:15:43.320
So we think we're on good ground, that Mises is good on this issue, even though we disagreed with him on monopoly, as I was just talking about before.

668
01:15:43.320 --> 01:15:55.320
So to me it's sort of a beautiful thing, you know, on some issues we agree with Hayek and disagree with Mises, on others it's Kirzner versus Lachmann, and that's the way a good social science should be.

669
01:15:55.320 --> 01:16:02.320
You know, nobody says, well Mises said it so it must be right, you know, Mises said it and now let's see if he's right.

670
01:16:02.320 --> 01:16:18.640
Okay, the next thing I want to talk about briefly is the article that Joe Salerno, Bill Barnett and I have attacking Hans Hoppe and Murray Rothbard on the relationship between wealth and time preference.

671
01:16:18.640 --> 01:16:31.360
Now, we all agree that the richer you are, the tendency is toward lower time preference because you have more money, you're not so desperate, you're not so impatient.

672
01:16:31.360 --> 01:16:40.760
And we all agree, both sides of this little debate, that if you are starving or dying of thirst or something,

673
01:16:40.760 --> 01:16:45.420
you have an infinite time preference, because if you don't get it now, you die.

674
01:16:45.420 --> 01:16:55.240
There's even an Arabic story or, I don't know, something that if you're drowning, you'll grasp a sword.

675
01:16:55.240 --> 01:16:59.400
You know, if you're literally drowning, you'll grasp a sword even though it'll cut your fingers.

676
01:16:59.400 --> 01:17:02.320
So high is your time preference rate for the present

677
01:17:02.320 --> 01:17:03.920
that you're willing to forego your fingers

678
01:17:03.920 --> 01:17:06.420
just to get out of there.

679
01:17:07.680 --> 01:17:10.280
So we agree that it's a praxeological thing

680
01:17:10.280 --> 01:17:12.200
that when you're desperately poor,

681
01:17:12.200 --> 01:17:14.200
the richer you are, the lower the time preference is

682
01:17:14.200 --> 01:17:16.040
because it's infinite now

683
01:17:16.040 --> 01:17:17.040
and it'll be a little less

684
01:17:17.040 --> 01:17:19.280
if you have something to eat and drink.

685
01:17:19.280 --> 01:17:23.480
However, when Bill Gates gets an extra million dollars,

686
01:17:24.340 --> 01:17:28.140
does his time preference necessarily fall?

687
01:17:29.400 --> 01:17:33.900
Rothbard and Hoppe say yes. Hoppe says this in his book, God That Failed.

688
01:17:33.900 --> 01:17:38.400
Rothbard says it in his, I forget where, offhand, I guess in Man, Economy and State.

689
01:17:38.400 --> 01:17:41.900
And Salerno, Barnett and I say no.

690
01:17:41.900 --> 01:17:44.900
We would expect that as an empirical generality,

691
01:17:44.900 --> 01:17:49.400
that even for Bill Gates, when he gets an extra million, his time preference rate will fall.

692
01:17:49.400 --> 01:17:55.900
But it need not be. And we come up with some numerical cases to show that it's not so.

693
01:17:55.900 --> 01:18:07.200
Okay, the next thing I've got... Ah, unions! We haven't bashed unions enough, you know.

694
01:18:07.200 --> 01:18:11.900
Murray is up there and he's saying, you know, block you fool, you know, how about unions?

695
01:18:11.900 --> 01:18:18.200
So I'm hearing the message and now I'm ready to attack unions.

696
01:18:18.200 --> 01:18:25.500
What's going on with unions? Well, are unions per se illegitimate?

697
01:18:25.500 --> 01:18:38.020
And notice I'm subtly moving from the positive to the normative, this union analysis combines both, so bear with me.

698
01:18:38.020 --> 01:18:49.780
Well, the answer is no. You can imagine a union, and I could put the unionist in a future defending the undefendable because they're not per se anti-libertarian.

699
01:18:49.780 --> 01:18:58.280
If a union was to confine itself to organizing mass quits, they would be legitimate.

700
01:18:58.280 --> 01:19:04.380
For example, I go to the boss myself. He's paying me $10 an hour. There are 5,000 employees.

701
01:19:04.380 --> 01:19:11.580
I say, boss, you're unfair. I want $11. And, you know, he says, take a hike.

702
01:19:11.580 --> 01:19:16.580
Whereas if I go to the boss and I say, look, all 5,000 of us are going to quit,

703
01:19:16.580 --> 01:19:20.180
unless you give us a dollar raise from 10 to 11.

704
01:19:20.180 --> 01:19:22.660
Now he sort of has to think about it

705
01:19:22.660 --> 01:19:24.420
because it's a pain in the neck, you know,

706
01:19:24.420 --> 01:19:28.500
us 5,000, we're well organized, we work together

707
01:19:28.500 --> 01:19:31.700
and to fire us all or to have us all quit

708
01:19:31.700 --> 01:19:35.140
and have to get a new 5,000 will cost them something

709
01:19:35.140 --> 01:19:38.660
and you know, maybe better to just give us the buck.

710
01:19:38.660 --> 01:19:41.700
In other words, you sort of have more of a say,

711
01:19:41.700 --> 01:19:43.100
more of a bargaining power or something.

712
01:19:43.100 --> 01:19:48.700
And if the Union limits itself to just that, they're legitimate.

713
01:19:48.700 --> 01:19:52.900
Because do we have a right to quit? Do I, as an individual, have a right to quit? Yes.

714
01:19:52.900 --> 01:19:57.900
If I didn't have a right to quit, it would be slavery. Indeed, that was the only problem with slavery.

715
01:19:57.900 --> 01:20:02.800
You couldn't quit. If you could quit, it would be a fine institution.

716
01:20:02.800 --> 01:20:07.400
Now, someone's going to say, Block says slavery is a fine institution.

717
01:20:07.400 --> 01:20:11.600
That's not exactly what I mean. I mean, if you can quit, then slavery is a fine institution,

718
01:20:11.600 --> 01:20:15.320
or at least a non-anti-libertarian institution.

719
01:20:15.320 --> 01:20:18.400
It's not fun unless you're a St. Omasochist or something.

720
01:20:20.800 --> 01:20:24.080
Well, if I can quit on my own and it's legitimate,

721
01:20:24.080 --> 01:20:26.380
can we all quit together?

722
01:20:26.380 --> 01:20:27.520
Yep.

723
01:20:27.520 --> 01:20:29.840
Just because, you know,

724
01:20:29.840 --> 01:20:31.760
the lover of liberty doesn't count noses.

725
01:20:31.760 --> 01:20:34.260
If it's right for me, it's right for everyone.

726
01:20:34.260 --> 01:20:37.740
The fallacy of whatever doesn't operate here.

727
01:20:39.280 --> 01:20:40.720
What's the fallacy I'm talking about?

728
01:20:40.720 --> 01:20:48.400
going from one to the group yeah fallacy composition doesn't apply here if one

729
01:20:48.400 --> 01:20:52.440
person has a right to quit we all have a right to quit en masse even though it'll

730
01:20:52.440 --> 01:21:00.360
be inconvenient are there any unions that limit themselves to just this well I was

731
01:21:00.360 --> 01:21:03.000
doing a little research on this and I came up with this thing called the

732
01:21:03.000 --> 01:21:09.280
Christian Labor Association of Canada I'm not kidding there is such a group

733
01:21:09.280 --> 01:21:25.280
Christian Labor Association of Canada and I had the guy on the phone and I said, you know, before I get to that, let me get back to the other train of thought.

734
01:21:25.280 --> 01:21:32.280
Okay, so one thing that you have the right to do is to have a quit or a mass quit and an organized mass quit.

735
01:21:32.280 --> 01:21:49.280
But a strike is not just a mass quit, rather a strike is a mass quit plus restrictions on entry.

736
01:21:56.280 --> 01:22:01.280
Because what the typical union will do after they all quit is they'll stand around and pick it

737
01:22:01.280 --> 01:22:07.280
and they'll prevent scabs from taking the job, and they'll beat up the scabs.

738
01:22:07.280 --> 01:22:15.280
Now it's one thing to quit, if I divorce my wife fine, but it's another thing if I set up a picket around her house

739
01:22:15.280 --> 01:22:21.280
and she tries to date anyone else, my buddies beat him up, that's the equivalent of a strike.

740
01:22:21.280 --> 01:22:27.280
And no one in a million years would accept that it would be reasonable or legal for me

741
01:22:27.280 --> 01:22:32.280
and me to make sure that my wife can't date any other man.

742
01:22:33.640 --> 01:22:35.160
But that's what unions do.

743
01:22:35.160 --> 01:22:38.640
They beat up the scab, they say they're taking our jobs,

744
01:22:38.640 --> 01:22:40.080
but they're not their jobs.

745
01:22:40.080 --> 01:22:43.120
The possessive pronoun doesn't work that way.

746
01:22:43.120 --> 01:22:46.200
A job, rather, is a manifestation of a contract.

747
01:22:46.200 --> 01:22:47.640
So how can it be your job?

748
01:22:49.800 --> 01:22:51.760
So I asked the Christian Labor Association,

749
01:22:51.760 --> 01:22:54.880
she said, well, would you ever beat up scabs?

750
01:22:54.880 --> 01:22:57.000
Oh no, no, no, no, no, we're pacifists, we're Christians,

751
01:22:57.000 --> 01:22:59.400
We turn the other cheek, we don't do that.

752
01:22:59.400 --> 01:23:04.080
If we go out on quit, it's not a strike.

753
01:23:04.080 --> 01:23:06.240
Then I gave them the coup d'etat and they failed.

754
01:23:06.240 --> 01:23:08.560
I said, well, what about labor legislation?

755
01:23:08.560 --> 01:23:10.520
Do you favor Canadian labor legislation

756
01:23:10.520 --> 01:23:13.360
similar to the Wagner Act that forces the employer

757
01:23:13.360 --> 01:23:15.440
to deal with you when he would rather,

758
01:23:15.440 --> 01:23:16.560
oh yeah, we favor that.

759
01:23:17.800 --> 01:23:19.640
So that they couldn't make it.

760
01:23:19.640 --> 01:23:24.640
So it's a null set of legitimate unions,

761
01:23:24.840 --> 01:23:26.360
but it's theoretically possible

762
01:23:26.360 --> 01:23:56.360
So what should our attitude be toward unions? Should our attitude be the conservative attitude of hemming in unions by not letting them have automatic dues, penalties, where the employer has to take the dues away and give it to the union, or should we have democratic votes or any of this stuff? No. If it's a private organization, they can do whatever they want.

763
01:23:56.360 --> 01:23:59.360
They can do anything they want. They don't have to be democratic.

764
01:23:59.360 --> 01:24:04.360
The key is to hit them right in the core of their illegitimate power.

765
01:24:04.360 --> 01:24:08.360
So what I'm saying is that the conservatives go for irrelevancies.

766
01:24:08.360 --> 01:24:12.360
The key is, do they have a right to restrict entry?

767
01:24:12.360 --> 01:24:16.360
Will the cops stand idly by when they beat up scabs?

768
01:24:16.360 --> 01:24:21.360
Or when they perpetrate things like the minimum wage so that the scabs won't come in the first place?

769
01:24:21.360 --> 01:24:27.760
Okay, we've got a few minutes for questions. Yes, Matt.

770
01:24:27.760 --> 01:24:29.560
I have a question about the triangle.

771
01:24:29.560 --> 01:24:30.060
Yes.

772
01:24:30.060 --> 01:24:36.560
You mentioned the problem of... Basically, I agree with you, and I think that's a good factor, and you probably support it.

773
01:24:36.560 --> 01:24:39.360
Because it's really important to reject the triangle.

774
01:24:39.360 --> 01:24:40.760
Do you edit any journal?

775
01:24:40.760 --> 01:24:41.260
Huh?

776
01:24:41.260 --> 01:24:42.560
Do you edit any journal?

777
01:24:42.560 --> 01:24:43.560
No, I'm kidding.

778
01:24:43.560 --> 01:24:45.060
I can start one before you start.

779
01:24:45.060 --> 01:24:45.760
Please.

780
01:24:45.760 --> 01:25:04.760
Probably the response might be, and one of the fellows is writing the paper, well there's a problem with small steps and continuous curves and aggregation and all those things, but there's one thing that you can aggregate and one thing that you can't have continuous, which is money.

781
01:25:04.760 --> 01:25:27.560
Well, notice that we're attacking the horizontal axis. We're not attacking the vertical axis. The vertical axis, you're quite right, money can be

782
01:25:27.560 --> 01:25:32.640
We're not attacking that vertical axis, we're attacking the horizontal axis.

783
01:25:32.640 --> 01:25:41.600
So, I think we're safe from your criticism but you know since you seem to be into it, I'll give you the paper and you know if you have any criticisms about it, I'd love to have them.

784
01:25:41.600 --> 01:25:48.200
Yes, okay, when you were talking about monopoly, you were saying that's a good way of going about it,

785
01:25:48.200 --> 01:25:56.920
I'd love to have them. Yes, okay when you were talking about monopoly and you were

786
01:25:56.920 --> 01:26:01.320
saying well how do we know that you know this is a bad price or this is you know

787
01:26:01.320 --> 01:26:07.720
not the optimal price well I mean all the all those being equal it you know

788
01:26:07.720 --> 01:26:13.520
lower prices are preferable to higher prices I mean if all you know perhaps you

789
01:26:13.520 --> 01:26:19.520
From a consumer's perspective, isn't this obvious?

790
01:26:19.520 --> 01:26:24.520
Well, from a consumer's perspective, but from the producer's perspective, it's not at all obvious.

791
01:26:24.520 --> 01:26:28.520
It seems to me that the function of price is to allocate resources.

792
01:26:28.520 --> 01:26:33.520
So, of any given price, if you say lower is always better than higher, the lowest price is always zero,

793
01:26:33.520 --> 01:26:37.520
so all prices should be zero, and if all prices are zero, you don't have much of an economy.

794
01:26:37.520 --> 01:26:46.520
Okay, well, but I'm just saying this could be turned around on you and some advocate of government say on taxes on cigarettes.

795
01:26:46.520 --> 01:26:51.520
Well, you know, the optimal price here doesn't take into account for, you know, the damage to your health.

796
01:26:51.520 --> 01:26:59.520
And so what we have to do is we have to tax this and, you know, lower prices be damned and we have to, you know, raise the price on this.

797
01:26:59.520 --> 01:27:06.520
What I think is a more striking case against any trust is something along the lines of you can't have a monopoly to come in and break up a monopoly.

798
01:27:06.520 --> 01:27:16.520
That's a very good point, very good point, that the government is a monopoly in the first place, so if you're really against monopoly, quit.

799
01:27:16.520 --> 01:27:29.520
I think that's a brilliant point. The other, I can't see my way clear to agreeing, because to me the function of a price is to indicate scarcities, relative scarcities, so lower is not better than higher.

800
01:27:29.520 --> 01:27:34.520
But that other point I think you're quite right and that's a very good point. The guy behind you?

801
01:27:34.520 --> 01:27:43.520
I would like to know what do you think about Roger Garrison's conception of secular growth?

802
01:27:43.520 --> 01:27:48.520
I would like to know what do you think about Roger Garrison's conception of secular growth?

803
01:27:48.520 --> 01:27:58.520
He explained that secular growth occurs without having been provoked by policy, or by technological advance, or by change in the temporal preference.

804
01:28:04.520 --> 01:28:18.800
I don't see that his view, I think you can have growth without changing time

805
01:28:18.800 --> 01:28:24.320
preference if you have an innovation. I don't think that anything he says about

806
01:28:24.320 --> 01:28:30.000
secular growth is, it sort of misses what I'm saying about triangles. In other words,

807
01:28:30.000 --> 01:28:36.640
I'm not against Austrian business cycle theory. I'm in favor of it. I'm trying to improve it.

808
01:28:36.640 --> 01:28:44.480
But I'm saying that the triangle is not the best vehicle for this and we should either use it less

809
01:28:44.480 --> 01:28:51.040
or use it more cognizant of its failings. But I don't think I tangle with Roger on secular growth

810
01:28:51.040 --> 01:28:56.000
just because I criticize the triangle. I don't think that the only way you can have growth is

811
01:28:56.000 --> 01:28:58.480
is to have time preference falling.

812
01:28:58.480 --> 01:29:01.080
There are other sources of resource discovery

813
01:29:01.080 --> 01:29:05.160
or innovation or, I don't know, Einstein comes along

814
01:29:05.160 --> 01:29:07.420
and all of a sudden, or Bill Gates comes along

815
01:29:07.420 --> 01:29:11.040
and all of a sudden we have more growth than we had before.

816
01:29:11.040 --> 01:29:13.400
But I don't think that there's a conflict

817
01:29:13.400 --> 01:29:17.800
between Roger and I on secular growth.

818
01:29:17.800 --> 01:29:20.400
There is on the triangle, but not on secular growth.

819
01:29:22.280 --> 01:29:23.160
Yeah, Adam.

820
01:29:23.160 --> 01:29:34.160
I've got a question about the triangle, namely that, do you have any examples of when, let's say we granted your criticisms of the formation of the, the depiction of the triangle are correct.

821
01:29:34.160 --> 01:29:39.160
Are there any instances when invalid things are being deduced from the triangle?

822
01:29:39.160 --> 01:29:48.160
I mean, because there's, like, if I talk about polka-dot horses, you might object that there are no polka-dot horses, but if I'm just talking about how fast they run, that there's nothing invalid.

823
01:29:48.160 --> 01:30:18.160
Not in this, not in our paper. All our paper, it's a limited paper. We have a follow-up paper, now that the triangle is not used, now it already do, and what I said there is we look more upon interest elasticities, and in that, our expectation is that the triangle will point us in the wrong ways, but in this paper that we've just written,

824
01:30:18.160 --> 01:30:24.560
There is nothing there that says, aha, you used the triangle, you screwed up, you should have zigged when you zagged.

825
01:30:24.560 --> 01:30:27.560
There's nothing like that, but that's a very good point.

826
01:30:29.560 --> 01:30:31.560
Well, I guess we're out of time. Thanks for your attention.