mck@ratex.UUCP (Daniel Kian Mc Kiernan) (02/10/85)
>On the other hand, as I have previously pointed out, Standard Oil >at the turn of the century controlled 99% of the oil industry in the >U.S. While free market devotees keep trying to wish this fact away >by somehow ascribing it to "government regulation" they have yet to >specify exactly what government regulations led to this situation. Mr Sevener has showed no qualms in the past about directing the reader to this or that book, but apparently finds it unacceptable when his opponents direct him to a book; previously I have suggested that he read *The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916* by Gabriel Kolko; to this I would add Kolko's *Railroads and Regulation*, and Robert Wiebe's *Businessmen and Reform*. Anyway, I'll sketch a couple of ways that government intervention hampers market-performance. One way that businesses seek to increase profits and preserve market shares is by forming a cartel. Cartels are associations within an industry which attempt to limit overall production, thus driving up unit price. Cartels limit overall production by allocating a limited share of production to each member. But, without government intervention, cartels fall apart. Changing circumstances cause members to insist on a redivision of the market; members have incentive to secretly (or sometimes overtly) produce beyond their allocation; and new firms enter the market. With government intervention, cartels have a better time of things. Tariffs reduce competition from abroad (in fact, the Sherman Antitrust Law was passed in large part to placate voters angry about Republican increases in tariffs). Firms can get the government to set up an agency, like the ICC, which fixes prices and market shares -- in effect enforcing cartel policy and hampering the entry of new firms (this is one of the reasons that partial deregulation of oil, trucking, and airlines has led to lower prices; unfortunately, the trend toward deregulation which began during the Carter Administration has been slowed, stopped, and sometimes even reversed by the Reagan Administration). Adding to this, government intervention can help big business by setting prices whch guarantee a rate of return. Ostensibly this is to keep the firm from making 'too much'; in practice, this allows the company to get sloppy about cost-control, and, if the rate-of return is figured as a function of paticular costs (such as the value of fixed capital), allows the company to increase profits by manipulating costs (in the case where rate-of-return is figured as a function of the value of fixed capital, the company over-invests in fixed capital and underinvests in training of personnel). Another way that government intervention protects big business is with compliance costs, such as the costs of filling-out and filing forms, which fall proportionally more heavily on smaller businesses. >Nor do they specify how the miraculous free market is going to bring >countervailing political pressure to challenge such control. Nothing that I've said entails any miracles. Further, by definition, the Free Economy does not 'bring countervailing political pressure to challenge such control' (you either haven't been unable to follow what I've said, or you are trying to impose a limiting and illegitimate paradigm in a dishonest attempt to score debator's points). Over-concentration of the market is eliminated in the Free Economy by competition, and the upstart competitors are aid by the diseconomies of scale confronting overly-big business. >We have seen what an amorphous grouping of nations with varying aims >and interests can do to the world economy with the example of OPEC's >oil embargo. In point of fact, the OPEC countries were only able to form a cartel (and one which is now in the process of dying) because US foreign policy pre- structured the oil market (in a stupid attempt to guarantee supplies) and the OPEC members had merely to take-over the structure, and because the government enforced 'drain America first' policies (I'm still not sure just what they were trying to accomplish) which depleted domestic sources. > What would be the effects of having the entire domestic >oil industry under *one* unified corporation? Assuming no tariffs, and assuming that the US government did not resurrect OPEC (some pinheads in the media claim that it should), the effect would be to have us buy other forms of power, such as foreign oil, until the domestic supplier fragmented. This is, of course, making the ridiculous assumption that such a corporation could maintain such dominance for any significant time without government intervention. Even starting with an infant industry, and aided by government policy, Standard Oil was unable to maintain its market share; before *Standard Oil Co. v. U.S.* (1911), Standard's market share was declining dramatically and was at an all-time low. Notably, in our present-day, more-thoroughly Fascist economy, one of Standard's children, Exxon, has grown to be the largest corporation in the world. > Or how about other >industries which could potentially become monopolies? In a Free Economy, the only way that a major industry could be monopolized is if 1) economies of scale were such that efficiency were maximized when one company produced all of the good or service, and 2) the company followed a policy of P=MC (price equals marginal cost). I'm doubtful about condition 1 obtaining for any prolonged period, and when condition 1 and condition 2 both obtain, I can see no economic objection. >IBM has been constrained from even greater control of the computer market >by successful suit by CDC and other rival computer manufacturers. Right off hand, I can think of two ways that government intervention has helped IBM. First, most inventions are PATENTED instead of COPYRIGHTED; the fundamental distinction between a copyright and a patent is that copyrights do not constrain independent re-invention (thus, *The Tower* and *The Glass Inferno*, which are extremely similar books, could both be copyrighted and sold). Second, the government forbid IBM's greatest potential rival, AT&T, from entering the computer business until recently. >I have seen no suggestion for antitrust activity or steps to insure >that the free market assumptions of many buyers and sellers are met in >Libertarian proposals. Now, Tim, when you first talked about 'the free market assumptions of many buyers and sellers', the Pure or Perfect Competition model, it could be attributed to inadequate background and foolish assumption on your part (as Carnes once indicated, some people with meager exposure to economics think that they know all that's important). But I've pointed out, to you and others, that my arguments for a Free Economy are not founded on such models. So this is yet another straw-man argument on your part. Hang it up, Tim; it doesn't work any more (assuming that it ever did). > JCL FOREVER!!!! What a dreadful thought. Back later, Mc Kiernan This disclaimer will not be in effect until tomorrow.