Standard Myth

by Don Boudreaux on October 21, 2014

in Antitrust, Competition, History, Myths and Fallacies

Here’s a letter to the New York Times:

Paul Krugman’s allegation that Amazon has harmful monopsony power misses many a mark, not least of which is Mr. Krugman’s mistaken account of John. D. Rockefeller’s Standard Oil as a monopoly that “had too much power” (“Amazon’s Monopsony Is Not O.K.,” Oct. 20).

Serious students of Standard’s practices during the late 19th and early 20th centuries understand that complaints against that company came overwhelmingly from other refiners who couldn’t match Standard’s great efficiencies.  Yet no complaints came from consumers.  Standard made them overwhelmingly better off – which is compelling evidence that Standard did not have monopoly power.

Here’s the noted antitrust historian D.T. Armentano: “Standard Oil’s efficiency made the company extremely successful: it kept its costs low and was able to sell more and more of its refined product, usually at a lower and lower price, in the open marketplace.  Prices for kerosene [Standard’s principal output] fell from 30 cents a gallon in 1869 to 9 cents in 1880, 7.4 cents in 1890, and 5.9 cents in 1897.  Most important, this feat was accomplished in a market open to competitors, the number and organizational size of which increased greatly after 1890.  Indeed, competitors grew so quickly in the years preceding the federal antitrust case that Standard’s market share in petroleum refining declined from roughly 85 percent in 1890 to 64 percent in 1911.  In 1911, at least 147 refining companies were competing with Standard, including such large firms as Gulf, Texaco, Union, Pure, Associated Oil and Gas, and Shell.”*

Nobel laureate economists should not parrot potted economic histories.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* D.T. Armentano, Antitrust Policy (Washington, DC: Cato Institute, 1986), pp. 24-25.

Here’s Tyler Cowen’s take on Amazon’s alleged monopsony power (and on Krugman’s column on it).  I’ll likely blog later on this particular angle.

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Quotation of the Day…

by Don Boudreaux on October 21, 2014

in Seen and Unseen, Work

… is from pages 43-44 of my colleague Walter Williams’s splendid 1999 collection, More Liberty Means Less Government; specifically, it’s from Walter’s April 1995 essay “Free Markets and Blacks”:

Setting minimum wages is one of the most effective tools in the arsenal of racists everywhere.  South Africa’s racist Mine Workers Union discovered that years ago, saying, “When the minimum wage is introduced we believe that most of the difficulties in regard to the colored question will automatically drop out.”  Of course the motivation for the minimum wage in the U.S. is different but effects are identical – unemployment for the least skilled and least preferred worker.

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From the Wall Street Journal is this account of the Cato Institute’s important new Center for Monetary and Financial Alternatives, headed by my close friend George Selgin (and with the assistance of my colleague Larry White).  A slice:

Criticism of the Fed, Mr. Selgin acknowledged, has come not just from serious economists but also conspiracy theorists with outlandish and often-distasteful ideas.

“One of my goals, as the director of the center, is to be in charge of damage control. That consists of making sure our work isn’t tainted by this kind of amateur stuff,” Mr. Selgin said. “We need to keep ourselves pure in terms of our writing being as scholarly as it can be. If we do that, we can make a strong case against holding the Federal Reserve to be the best of all possible monetary systems.”

The center boasts some heavy hitters in the economics world. Its academic advisers include two Nobel laureates, New York University’s Thomas J. Sargent and Chapman University’s Vernon L. Smith, as well as Stanford University economist John B. Taylor and others.

Two former Fed policy makers are involved: former St. Louis Fed President William Poole will be a senior fellow, and former Cleveland Fed President Jerry Jordan will be an adjunct scholar.

My intrepid Mercatus Center colleague Veronique de Rugy makes again the important case to kill that great geyser of cronyism, the U.S. Export-Import Bank.

Charles Murray writes about Ayn Rand.  (HT Greg Mankiw and my colleague Alex Tabarrok)  Here’s the concluding paragraph:

Ayn Rand never dwelt on her Russian childhood, preferring to think of herself as wholly American. Rightly so. The huge truths she apprehended and expressed were as American as apple pie. I suppose hardcore Objectivists will consider what I’m about to say heresy, but hardcore Objectivists are not competent to judge. The novels are what make Ayn Rand important. Better than any other American novelist, she captured the magic of what life in America is supposed to be. The utopia of her novels is not a utopia of greed. It is not a utopia of Nietzschean supermen. It is a utopia of human beings living together in Jeffersonian freedom.

I would not bet against my colleague Bryan Caplan on the Ebola issue.

Fed Chairwoman Janet Yellen joins the chorus of people chanting that middle-class living standards in America have stagnated over the past few decades.  James Pethokoukis helps to set her straight.

Citizens arrest!  (HT Reuvain Borchardt)

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Quotation of the Day…

by Don Boudreaux on October 20, 2014

in Myths and Fallacies, Seen and Unseen

… is from page 60 of the 1990 Liberty Fund edition of Vera Smith’s superb 1936 volume, The Rationale of Central Banking and the Free Banking Alternative:

The public mind entertained exaggerated hopes as to the power of banking.  It was a widespread belief that all that was necessary to relieve a scarcity of capital was an elastic note issue, and the issue of notes was still thought to possess something akin to a magic power of transforming poverty into wealth.

Here Smith is speaking of mid-19th-century German states, but the magical thinking she describes is, of course, among the most common fallacies to be found across time and space.  People frequently mistake money for prosperity.  The veil of money is, for such people, a curtain hiding from their view all that is real and most relevant.

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Protectionism’s Essence

by Don Boudreaux on October 19, 2014

in Trade

Here’s a letter to a college student in New Jersey:

Dear Mr. Sloan:

Thanks for writing.

You ask if my support of free trade is “too simplistic.”  Aren’t there “conditional situations and details” that I overlook when I oppose protectionist arguments?  Fair questions.  My answer, though, is that while I agree that reality is unavoidably more complex than are any human accounts of it, the unconditional case against protectionism is as sound as is, say, the unconditional case against armed robbery.

Suppose your next-door neighbor grows tomatoes and offers to sell some to you.  You reject his offer and instead buy tomatoes from a seller who lives further down the street.  Your next-door neighbor’s prices might be higher than are those charged by the more-distant seller or the quality of his tomatoes not quite to your liking.  Whatever the reasons, you don’t buy tomatoes from your neighbor.

Now suppose that your neighbor responds by pointing a gun at your head to demand that you hand over to him a dollar for every pound of tomatoes that you buy from the seller down the street.  Would you think that your neighbor’s actions are justified?  Of course not.

But what if your neighbor tells you, as he stares at you down the barrel of his gun, that he really needs the extra income that he’ll get if you buy his tomatoes?  Or what if your neighbor insists that the seller down the street is selling tomatoes at prices that are unfairly low?  (“His uncle subsidizes his tomato growing!”)  Or suppose your neighbor asserts that he’s a more reliable supplier of tomatoes for the neighborhood than is the seller down the street?  Would any of these “situations and details” justify your neighbor threatening violence against you if you don’t pay to him a fee whenever you buy tomatoes from someone else?  Of course not - and this conclusion wouldn’t change if your neighbor outsourced to a criminal gang the task of collecting from you the fees your neighbor demands for your patronizing another seller.

Protectionism of the sort practiced by sovereign governments is similarly unconditionally unjustified, for it differs in no relevant ways from the armed robbery described above.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

….

I could have added to the letter many other conditions, each equally unsuccessful in justifying the next-door neighbor’s threats of violence.  For example, if a majority of the adults in the immediate vicinity of your house vote to permit your next-door neighbor to threaten violence against you for your not buying his tomatoes, such use of force remains utterly unjustified.

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… is from pages 191-192 of Leonard Read‘s 1956 essay “Unearned Riches,” which is chapter XIV in the 1956 collection, edited by Mary Sennholz, On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises (available for free here) (original emphasis):

Our wage earner may think of his plight as hapless when compared to the one who inherited his millions.  True, the millionaire has gained much from the doings of others.  But the wage earner himself owes his life to the doings of others.  It is not that possessing millions and having life are alternative propositions.  That is not the point.  The point is that both flow from the same exchange process and that whatever each has – be it autos, houses, food, clothing, heat, millions, knowledge, or life itself – comes to him unearned in the sense that he alone did not produce all of it.  We trade because we can all get more satisfaction from our labor by that means.  Vast stores are available to those who have anything to trade that others value.  In the free market, each earns all that he receives in willing exchange.  This is fantastically more than one could produce by himself.

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Tom Palmer On Leonard Liggio

by Don Boudreaux on October 18, 2014

in Civil Society, Video

Tom Palmer discusses Leonard Liggio (1933-2014) – a man whose lifelong efforts have noticeably shaped, and will continue to shape for decades to come, the cause of liberalism and peace.

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Quotation of the Day…

by Don Boudreaux on October 18, 2014

in Inequality

… is from page 164 of Ludwig von Mises‘s 1951 essay “Profit and Loss,” as reprinted in the 2008 Liberty Fund edition of Mises’s 1952 collection, Planning for Freedom:

All the arguments advanced in favor of income equalization within a country can with the same justification or lack of justification also be advanced in favor of world equalization.  An American worker has no better title to claim the savings of the American capitalist than has any foreigner.  That a man has earned profits by serving the consumers and has not entirely consumed his funds but ploughed back the greater part of them into industrial equipment does not give anybody a valid title to expropriate this capital for his own benefit.  But if one maintains the opinion to the contrary, there is certainly no reason to ascribe to anybody a better right to expropriate than to anybody else.  There is no reason to assert that only Americans have the right to expropriate other Americans.

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Quotation of the Day…

by Don Boudreaux on October 17, 2014

in Politics, Self-deception

… is from pages 128-129 of Michael Huemer’s vitally important 2013 book, The Problem of Political Authority (link added; footnote excluded; emphases original):

The general precursors for the development of Stockholm Syndrome, then, are reasonably well satisfied in the case of citizens of modern states.  It is therefore not surprising to find that citizens tend to identify with their governments, adopt their governments’ perspectives, and develop emotional attachments (often considered ‘patriotism’) to their governments.  Just as Stockholm victims tend to deny or minimize their captors’ acts of coercion, many citizens tend to deny or minimize their governments’ coercion….  Due to the Stockholm dynamic, power has a self-legitimizing tendency: once it becomes sufficiently entrenched, power is perceived as authority.

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Higher Costs Are Not a Source of Prosperity

by Don Boudreaux on October 16, 2014

in Trade

Here’s a letter to The Economic Times:

The U.S. Treasury is jawboning Beijing to raise the price of the renminbi relative to that of the U.S. dollar (“Chinese currency significantly undervalued: US report,” Oct. 16) …. which is to say that the U.S. government is pleading with Beijing to force Chinese producers to raise the prices they charge for the goods they sell to Americans.

Gee whiz, if ever I had cause to doubt what I learned from my high-school civics teacher about the glories of American democracy, I might start to suspect that Uncle Sam sometimes pursues policies that make ordinary Americans poorer.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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