Steve3007 wrote: ↑
February 12th, 2018, 9:05 am
Or perhaps it is theorised that all possible factors have already been included in the model and that the fair price includes all those factors. That seems to me to be what is meant by this Subjective Theory of Value. It does seem to me strikingly similar to idealised laws of physics, like the ideal gas law, and in fact the analogy with laws of physics is made explicit in some of the laws which are used to calculate the fair prices of some things.
While I enjoyed my month-long ban, I certainly missed out on a lot here. I will attempt to address many points—mainly for the benefit of Steve3007 since I feel he is genuinely debating the issue—in one post rather than individual point-for-point responses, although I am unsure if I will continue to post on this forum.
The first point is that the question "aren’t monopolies the logical conclusion to free market?" is a result of long-disproven Marxist economic theory. Marx never published the later volumes of Das Kapital
because Karl Menger disproved his economic theory a few years after Marx published the first volume. It is evidence of intellectual regression to have to continue to argue against such long-disproven theory. Then again, there has been a resurgence of such nonsense, including having to argue against the Blank Slate and the defend the reality of biological differences, and it fits right in with the post-modernist nonsense I’ve encountered in other threads here about how math is epistemically subjective and science is a matter of beliefs…so I question the point of putting in the effort to respond, but here goes…
"one historical example of this pattern occurred when ALCOA—the Aluminum Company of America—controlled most of the supply of bauxite, a key mineral used in making aluminium."
This is an outright falsehood. One only has to read the legal case. ALCOA owned 48% of the ore quality bauxite in Arkansas while it was available in six
other states, and “outsides the United States, the supply of bauxite is practically inexhaustible.” The old windbag is at it again with her Google scholarship, failing to actually investigate the validity of her quick Google searches. However, perhaps knowing history, just like knowing economics, is merely "libertarian fundamentalism."
None of the companies named, ALCOA, Standard Oil, American Tobacco, or U.S. Steel, were monopolies in the sense of being a sole seller. Being dragged through anti-trust litigation does not mean they were monopolies.
None of them were exclusive sellers of their product, and perhaps more importantly, none of them had what might be considered a monopoly price since they all dramatically reduced the cost of their product over time. ALCOA is an excellent example where they dramatically reduced the price of aluminum from $5/lb in 1887 to $0.15/lb in 1941 and with inflation this drop is even more, especially considering the massive inflation in the progressive era, and the "barriers to entry" argument is nonsense since very wealthy investors looked into this field, including Ford, but decided their money was more productively invested elsewhere. These companies certainly had no shortage of capital to compete. The most notorious of the supposed monopolies, Standard Oil, had a peak market share of about 90% in 1899—which is not a monopoly—but it was not able to retain this dominance. By 1904 this share slipped to 84%, then to 80% in 1911 when anti-trust legislation was used against them. Perhaps one might argue that they had enough control of the market to extract a monopoly price, but of course they didn’t and instead drastically reduced the wholesale price of kerosene from 45 cents per gallon in 1863 to 6 cents per gallon in the mid 1890s. What a terrible state of affairs. It is true that Rockefeller attempted to buy out other refineries to eliminate competition, but this never resulted in a monopoly since new refineries kept opening, and Rockefeller eventually stopped this practice in 1885 and 10-20% of the refining capacity in the U.S. continued outside of Standard Oil. Independent refiners continued to grow from 67 in 1899 to 147 by 1911. While there were many attempts at cartels in the steel industry, and at one point 138 companies consolidated into six trusts, and these six then formed U.S. Steel, it only had 62% of the market even with the protective tariffs on the cheaper British steel!
Their profits were dropping and they attempted to create a cartel to keep up the prices of steel in 1907, but by 1908 independent companies began secretly cutting prices which broke the agreement forcing U.S. Steel and other companies to compete.
Worse yet is the history behind the Sherman Anti-Trust Act. The motivation for the legislation began in the early 1870s as a result of the massive railroad subsidies that occurred as a result of the neo-mercantilist Republican party which entirely controlled Congress after the Civil War, since the rights of the southern states were violated upon returning to the U.S. This was the legacy of Lincoln's policy that brought to fruition Henry Clay's "American System" of crony capitalism. The people eventually became fed up over the blatant corruption and subsidies of the government and railroad industries, which created the anti-monopoly sentiment. Part of the bust of the unsustainable railroad subsidies was the bankruptcy of railroad tycoon Jay Cook, and as a result, J.P. Morgan became the leading investment banker in the U.S. This combination of government corruption fed into a oligarchical battle between the Morgans and the Rockefellers. While the Cleveland administration was dominated by Morgan, the McKinley administration was dominated by Rockefeller. This conflict came to a head with the assassination of McKinley and the Morgan affiliated vice president Teddy Roosevelt coming to power. This led to the domination of Morgan interests for almost the next decade with the Roosevelt. This led to the shielding of Morgan companies from the Anti-Trust litigation while attacking non-Morgan companies, the most famous of which was Rockefeller's Standard Oil in 1906 (Standard Oil was also part of the attacks on "price discrimination" of railroads, which was nonsensically labeled "monopolistic" despite the elimination of "price discrimination" reducing a method of competition between businesses). Subsequently, Rockefeller retaliated through the corrupt administration of William Howard Taft which then led anti-trust attacks on Morgan companies U.S. Steel and International Harvester. None
of these companies had a natural monopoly, and the Sherman Anti-Trust Act was used as a tool by big businesses made possible by corrupt politicians to go after competitors. On a free market without such legislation, or such interventionism, such a state of affairs could not have occurred. While it was true there were wasteful attempts at monopoly and cartelization, the companies learned from their mistakes. The whole idea of anti-trust legislation emerging from benevolent legislators helping the public is a complete fairytale that is exploded by both history and economic understanding. What we ended up with instead was a tool for corrupt government officials to attack successful and efficient businesses to favor special interests all the while lining their pockets and reducing competition
and reducing the standard of living of all.
While narrowly focusing on "economies of scale" and "entry barriers," one fails to realize that very large corporations tend to fall behind due to technological and entrepreneurial conservatism. Mainstream "economics" and a great deal of political philosophy fails to understand the importance of entrepreneurship in meeting the future demands of customers. Modern economics doesn't even really recognize entrepreneurship due to the nature of their mathematical models! Neo-Marxist or Marxist-inspired political philosophy sees corporate leadership as mere managerial book keeping. This type of stagnation was seen with Standard Oil and the cartels U.S. Steel and International Harvest. The quotes from people like Lenin that running a business is a matter of "extraordinarily simple operation" that "any literate person can perform" would be quite hilarious in their naiveté if it were for the horrendous loss of life that resulted from this ignorance. Nor was this limited to ignorant communists revolutionaries, as U.S. intellectuals such as John Dewey have said a number of enormously stupid things along these lines, such as "Industrial entrepreneurs have reaped out of all proportion to what they have sowed." Those ignorant of economics and business are all too quick to act as if they are experts in the matter. Furthermore, this narrow focus on economies of scale ignores that there are other limits to the economic size of a business, including inefficiencies of vertical integration, limits to management ability, and judgment necessary in entrepreneurship. It also ignores that smaller companies have lower overhead costs, are more mobile (conservatism is also found in location), have more flexibility in production, and can purchase necessary producers goods without driving up their own prices. They also are very often better innovators, they are less bureaucratic, and are more open to new ideas and methods. Critically, they are not stuck with aging capital goods, and can build new facilities using the most efficient methods, while larger established businesses must economize their capital goods and continue to use outdated methods until the newer methods become economically feasible (this was seen historically with both Standard Oil and U.S. Steel, utilizing new methods much later than their competitors). In other words, just as you don't get rid of your car just because a new better model came out without losing tremendous money, large established businesses must economize their capital goods which often means using outdated methods. This is yet another area which philosophers fail to understand, evidenced by their lamenting the use of inefficient capital goods and methods, not understanding the necessity of allocating scarce resources and economizing their capital structure. This results from the erroneous view that capital has independent production capacity rather than being reducible to land and labor. The entire monopoly theory is a result of erroneous neoclassical Pareto optimal models of perfectly competitive equilibriums, which is a blatant nirvana fallacy. This is seen in the link provided by the old windbag, but since I know she just did a quick Google search and has no comprehension of what she posted, she will be completely unable to fathom the logical impossibility of the horizontal demand functions which define the perfect competition which is used to justify misallocation as can be seen with the equivalence of price and cost on the y axis of the graph. More importantly, the graph provided in her link is irrelevant
since it assumes away the very entrepreneurial activity that is being investigated! However, that’s just “libertarian fundamentalism” according to her, but I digress.
The mention of Microsoft is pure nonsense. It’s amusing that while IBM was involved in more than a decade of anti-trust litigation while never approaching anything close to a monopoly, during this time little companies called Microsoft and Intel emerged. Later on, Microsoft found itself in legal trouble for requiring an internet browser to be bundled with their operating system in order to have the license for the operating system. There was no charge for it, and there is no preventing consumers from downloading different browsers as most people tend to do. To call this a monopoly or anti-competitive behavior is absurd and hardly worth mention.
If the only grocery store in town is considered to be a monopoly because they are the only grocery store "in the market," problems with this definition become immediately evident. In the U.S., this is a common situation in many small towns throughout the country. Such a town may have only one grocery store and one gas station, and while slightly higher prices relative to the general area are typically observed, very high prices are not found. Why? If they attempted to restrict output to obtain a monopoly price they would suddenly find out that businesses apparently "outside the market" would undercut them. Customers may drive to the next town for groceries, food may be shipped in by other companies (or even Amazon Pantry now), or businesses will emerge to compete for the profit which undercuts the original store. This might start as merely a delivery service and perhaps move to a store location with enough savings and lack of competition from the original store. What is evident is that these businesses were not outside the market and the grocery store never had a monopoly nor could it extract a monopoly price.
To say that "free market prices can still be higher than they would be in a non-monopoly - i.e. in a market with more than one seller" doesn’t help. Yes, the prices of the only grocery store in town is higher than if there was another grocery store in town, but this is arbitrary since if there were three grocery stores in town then there would be even lower prices, so is this the price that should be enforced? Why stop there? What if there were more competitors? The profits would tend toward zero
if this is continued, so where stop? How is the "fair" price determined? (as a side note, the neoclassical “perfect competition” model that eliminates profit is what is normally used but it is entirely illogical) The only grocery store in town is not a monopoly because it will become evident as already described if they attempt to dramatically raise their prices to extract a monopoly price that there they are not the only source of groceries in the market.
If you say that a monopoly is being the only seller of a particular product, you have to define the market and the product explicitly. Furthermore, in and of itself, being the only seller is not against the wishes of the customers--indeed the only producer may do an excellent job providing service as ALCOA did--but it is only if that single producer can extract a monopoly price by restricting output that the monopoly could be considered detrimental. Once again, you have trouble defining what a monopoly price even is, because you can arbitrarily imagine that there are more competitors and imagine
—not calculate—what the lower prices might be. But this is all fancy, for it seems rather arbitrary to say that the price should be what one imagines
it would be, or that it should be
any particular number not dictated by the consumer—even though this cannot be calculated—if there were just one more competitor, for the consumer would always be happier if there were more competitors and even lower prices. It is just as difficult to try to define what the market is, as demonstrated with the grocery store example. ALCOA is actually another excellent example of this, for they were the only U.S. producer of aluminum for a time, although one must keep in mind this was assisted through patents and purchasing the patent of a competitor legally which provided a legal monopoly on the production process for a length of time. Nevertheless, they certainly did not have high prices or attempt to extract a monopoly price, nor did they prevent competition in any way other than low prices and good products (you should read the appeal case for the anti-trust litigation where they judge rather pathetically and laughably condemned them for having "superior skill, foresight, and industry" as being “exclusionary” and illegal). Had they attempted to do so, not only would they find that foreign manufacturers of aluminum really were in their market, they would also see entry into their business by entrepreneurs with large amounts of capital in order to cash in on the monopoly profits that are now worth their investment.
On a free market, to really be the exclusive seller that extracts a monopoly prices there must be an artificial barrier created by law to limit the market (say to a particular country), or to limit entry through patents or licenses (such as Henry Ford had to deal with to enter the auto industry). While we can construct some rather unlikely scenarios in which a monopoly might naturally arise, these are inconsequential to the market system. If a country has a free market, there is a world
market for goods, and the more advanced the economy the more and more difficult it becomes to even approach anything close to a monopoly since there is far more capital available for investment, far more technological methods (which themselves require capital for implementation), and far more competitors to jump on any opportunity.
One could only hope that an understanding of economics could provide an improved efficiency on the market by avoiding the costly errors of attempted monopolization and cartelization. An excellent example of this comes from an annual report from the National Biscuit Company, which was formed in 1898 as a combination of three major companies in an attempt to monopolize the biscuit market:
“[...] when this company started, it was thought that we must control competition, and that to do this we must either fight competition or buy it. The first means a ruinous war of prices, and the greater loss of profit; the second, a constantly increasing capitalization. Experience soon proved to us that, instead of bringing success, either of these courses, if persevered, must bring disaster. This led us to reflect whether it was necessary to control competition [...] we soon satisfied ourselves that within the Company itself we must look for success.”
While this is somewhat excusable considering the time period, for sound economic theory did not come to the U.S. until well into the 20th century, today there is no such excuse for such ignorance.
When you say "we do not meet as buyers and sellers as equals; both are already in a situation, both have already committed themselves to a particular economic role which means they are dependent on others," I don't think you realize that this goes both ways. In fact, the business is often far more committed to a particular economic role than the buyer. Imagine you invest all your savings into capital goods which are not readily convertible and all of a sudden the market changes and you're left with capital goods that you will take heavy losses. You seem to think that it is the entrepreneur that sets the prices, but it is the consumer that sets the prices for all goods on a free market.
If you lament a particular economic state of affairs, do not blame the business, but blame your fellow man for their purchasing patterns instead.
By the way, the subjective theory of value has nothing in common with idealized physics. First, one deals with physical causation with invariant quantitative relations and the other with Intentional causation with variant qualitative relations. Importantly, the subjective theory of value does not make any assumptions that there must be a free market or any idealized circumstances
, but rather precisely covers any situation that may arise, whether in a free market or a totalitarian socialist regime. That economics is only idealized theory is a pernicious myth right up there with homo economicus
with no basis in reality.
The answer is a complete
separation of government and economics, which would prevent the massive corruption that has always existed. The West revolutionized government by separating religion and government, and it would another profound revolution to separate government from economics. The only
way to beneficially regulate the market is through strict enforcement of the rights of everyone, particularly the strict enforcement of property rights, and a 100% reserve gold standard monetary policy. In the U.S., this should become part of the constitution and not a matter of democratic election. It never ceases to amaze me that amount of things that are determined by election that have absolutely no business to be. The increasing democratic involvement in economic matters is a menace to civilization. This is particularly the case when combined with a utilitarian interpretation of law and the nonsense of “implied powers,” both of which are philosophical nonsense.