• barter

    Direct Exchange

    READINGS

    Chapter 2: Direct Exchange
    Man, Economy, and State, Murray N. Rothbard

    Chapter 2 Study Guide
    Study Guide to Man, Economy, and State, Robert P. Murphy

    AUDIO

    2.01 Types of Interpersonal Interaction: Violence

     

    2.02 Types of Interpersonal Interaction: Voluntary Exchange and the Contractual Society

     

    2.03 Exchange and the Division of Labor

     

    2.04 Terms of Exchange

     

    2.05 Determination of Price: Equilibrium Price

     

    2.06 Elasticity of Demand

     

    2.07 Speculation and Supply and Demand Schedules

     

    2.08 Stock and the Total Demand to Hold

     

    2.09 Continuing Markets and Changes in Price

     

    2.10 Specialization and Production of Stock

     

    2.11 Types of Exchangeable Goods

     

    2.12 Property: The Appropriation of Raw Land

     

    2.13 Enforcement Against Invasion of Property

     

    STUDY QUESTIONS

    1. Do different praxeological laws apply to situations of isolation versus society? (p. 79)
    2. What is Rothbard’s definition of society? (p. 84)
    3. Give an example of autistic exchange. (p. 84)
    4. Suppose someone says, “In order for an exchange to be just, each person must give up an equal value for an equal value.” What do you think Rothbard would say about this? (p. 85)
    5. What are three sources of ownership? (p. 93)
    6. What is the law of association? How does it relate to Boulding’s example of the doctor and his gardener? (p. 98)
    7. In Figure 16, how many horses will Smith demand at a price of 85 berries? At that price, how many total berries will Smith offer in exchange? (p. 125)
    8. What will happen to the price if the total demand to hold is higher than the stock? (pp. 137-140)
    9. How can the principles of this chapter be applied to shares of ownership? (p. 166)
    10. What is Rothbard’s response to Henry George? (pp. 171-172)
  • MG_6861_W

    The Intention of an “Evil” Rich Capitalist in a “Libertarian Utopia.”

    capitalism-is-evil

    I’m sure we have all heard such a premise in conversations with those that….well, those that don’t share our understanding for markets and libertarianism. For me, the best way to understand anything is to live it and use real world examples to develop, refine, or reject perspectives. A good one came my way this past Wednesday at work, when I was let in on some “Privileged” information and in the interest of trying to maintain some anonymity of my work and those that would rather keep this information more hush hush, I will say I deal in rental and commercial property in a wealthy and a ever growing desirable community in the Boston area. I will also say that the owners of said property started from very little and then made some great business decisions over the years and even though they don’t own mansions or drive around Rolls-Royces, they probably could and if they did I don’t think it would phase or surprise many people.

    Now I’m not sure if it is fear due to ignorance or envy, but any anti-capitalistic and/or libertarian strawmen arguments needs some addressing. One such common argument being: “In a libertarian Utopia, there would be no regulations and the rich could and probably would buy up all the land around them.” This assertion is two parts; one making the fallacious argument that libertarians believe in chaos and that libertarianism is about establishing a perfect egalitarian society without any rules, which is flat out incorrect. The other being capitalism is malevolent and a capitalist’s only goal is to own and control/restrict as much as the world as possible. This is debatable, (because people’s intentions are subjective) but I will explain here (using a real world example) how such an assertion is unlikely and that it is logical that any good capitalist would have greater success with more benevolent intentions.

    I will not explain to you what libertarianism is…..or isn’t, really. For that, Lew Rockwell does a great job here.  I will also not go into capitalism or market theory. I will just be discussing the capitalist accumulation of property with the only restriction being by those unwilling to sell to them. So let’s say a rich investor rolls into a town or community and get their hands on a bunch of unused public property and buys up some real estate that someone is looking to offload. He raises the rent on the existing real estate, but also slowly improves it. Yes the tenants will have to pay more, but they get a nicer/better place to live and they also have the option to live somewhere more suitable to their needs and costs if they can’t or don’t want to afford the new price of the apartment. So people are actually making value judgments and thus improving their living standards and happiness, regardless of if they move or stay. He also builds on all that unused land, in hopes to make more money and increase his total wealth (Profit). Now this rich investor just expelled a ton of his wealth buying up properties, land and building on it. Now because he/she (To be PC) is providing value to people, (tenants) he/she is slowly creating capital and making their money back. They realize this so he buys up more properties and creates more opportunity by building more, thus increasing their total ownership or stake in the community. One could say that no regulations on what this investor or group of investors can or cannot own, (because libertarianism has no real restrictions on property and the legitimate ownership of it) would create chaos and the capitalist would end up owning all the land/property. This is a non sequitur, but a common thought process and argument among those that border on anti-(private)property and/or those that think government actually protects and regulates property and without it, the rich would just usurp all the important land.
    461011bcaf5b5e723e897c33f049f169_XL

    To entertain this absurdity though, let’s us say such a logical fallacy may not be untrue and suppose there is a possibility that small groups of or individual people would own huge amounts of property. I don’t think it would be similar to a private monarchy, where a whole town or community would be owned by one person or a few key people. However, for the sake of this argument, let’s say it would be that draconian. Let’s go down this road and pretend this happens.So What?! Do you think they are going to accumulate property the size of a community and burn it to the ground? Do you think they have a vested interest in spending their wealth, only to destroy their investment or any capital they would get from it or do you think they are going to improve the community and continue to ensure its future prosperity and desirability for everyone else? Is it better to acquire wealth through measures of control and coercion or by pleasing people and creating potential value for them through voluntary interaction? I think the latter is true, because such things are attractive to people who want a nice and safe community, which in turn also benefits them (The “evil rich” capitalist) in the long run. Logically there are very few sociopaths in this world that would go out of their way to acquire a “golden goose”, only to kill it. And I think most off of them exist within government. But for those few that cause chaos in society and negatively impact the lives of others, there would clearly be a demand for some type of arbitration to settle disputes. Any good capitalist would recognize and jump at the opportunity to capitalize off of bad actors in society, which unfortunately will always exist. Arbitration is a very important facet of society to settle disputes and transfer wealth from bad market actors to those effected by them, but dispute resolution is for another time and if you would like to learn more on the subject; this is a great Mises daily article.

    Realistically though, I don’t think a small few would end up owning all the important land absent the restrictions on the ownership of property. Remember, all legitimate transactions need to have a willing buyer and seller. (Unless you’re the first owner, but homesteading is for another time though) Some would be unwilling to sell. Others may be willing to sell, but they also have the right to discriminate. Other buyers may place greater values on the same properties and thus competition would breed ownership diversity. Also, one would reach a point where it would be impossible to properly allocate resources in their massive ownership stake and selling would eventually HAVE to be an option because of it. So there are plenty of reasons why it would be very unlikely for there to be a huge ratio to the amount of property or land owned, to those (few) that own it.  Not to say that the capitalist pursuit of property is anything like the game of Monopoly, but similar to the game, you win by everyone else making poor decisions and going bankrupt and not by who first controls the entire board.
    MG_6861_W

    Now, to use my real life example to make my insignificant and drawn-out point. My work has been putting a bunch of money into their properties; upgrades, improvements, new equipment, infrastructure….Even diversifying where they invest. This “privileged” information that I received the other day, was that they bought a small automotive repair shop, very near to a ton of other properties that they already own. At the time this didn’t make any sense to me, being they have more money than they need (I hate to use that phrase, but given their wealth and how they don’t really spoil themselves, they really don’t “need” any more capital) I now understand why someone would do something like this and shame on me for thinking only in terms of monetary value. The capitalist wants to improve and ensure the quality of his community, just the same as those who live and are a part of it! I mean if you made all the right decisions and had money burning a whole in your pocket because of it, wouldn’t you buy up assets to keep out any riff raff and to ensure the cronies don’t bring down the morale and quality of the community? Talk about literally “investing in your community” Real capitalists are conservationists. They take care of and preserve their resources and wherever possible, improve upon them.

    It turns out that is exactly what these people I work for are doing! They see value in at the very least making sure this community isn’t overran with any…..undesirables. Doing this, they are improving things for their own selfish benefit and thus creating demand for others to live there and prosper. The kicker; their investment is exponentially returned to them for the value they create for others. We don’t know what will come about with this repair shop deal, but if the last 45 years of community improvement and town desirability says anything…..this will only make it better. For a libertarian, the best part is that property and the pursuit of it did this. Not government or the guns they point at peaceful people as they voluntary interact with each other to create value for society. The simple concept of property and people being allowed to own however much of it someone else is voluntarily willing to exchange, is not a bad thing and actually makes for a better society and creates value for people. I know it did for me when I moved here.

    So the next time someone tells you that we need government to manage and control the exchange and accumulation of property, because capitalists will just buy up all the property and control and oppress people. Tell them government already does that and they don’t even legitimately own any land! The failures with this terrible idea of government are not synonymous with the unrestricted concept of ones pursuit of property and should not be compared to each other. Rules created through property rights and the respect for them, are far superior to the coercive authoritarianism of the State to dictate the free association of people and their pursuit  of and with the fruits of their labor. So whether libertarian chaos rules the day and “Evil” rich people use voluntary exchange to acquire vasts amounts of property or the more reality based scenario where they pursue just enough of it to keep out cronyism, really doesn’t matter. Both would be far better than the system we have now where government gets to decided the legitimacy of the ownership of property and then uses coercion to dictate how it’s used, while also demanding rent for said legitimate ownership of property. Not to mention the irony of then claiming it exists to protect such things.  Remember to pay your property tax so you don’t get evicted from what you thought was your property and/or thrown in a cage for failure to pay…..What seems like rent to government and how does such a perversion of property rights benefit anyone or at all legitimate?35

  • Buyers-Offering-Cash

    Consumers Can Fight Back

    I cannot count the times I have heard the following critique of libertarian philosophy:

    Yeah, the “free market” is great and all, but without the government, businesses would just screw over the little guy.

    This, however, is what they’re really telling you:

    You’re powerless. There is absolutely nothing you can do to arm yourself against those big bad capital hoarders who just want to oppress the people so that they can get rich at your expense. You need the government to take care of you because you’re a helpless little human being who is incapable of making the best decisions for you and the rest of society.

    This argument could not more condescending toward the average person, the very guy those who make this argument purport to protect. Are the people really this helpless?

    Simply put: no. In the typical business transaction, the consumer holds as much power, if not more, than the seller of whatever good is in question. Even in today’s corporatist environment (the economy of the United States resembles almost nothing of a true free-market, capitalist system), the consumer still retains the ability to singlehandedly decide whether most transactions take place or not, and therefore, is not powerless in the market.

    But, let’s take a step back and look at why people exchange goods in the first place. In any voluntary transaction, both parties experience mutually beneficial trade, otherwise such a trade would not occur in the first place. If a farmer trades eggs with his neighbor, a cobbler, for shoes, he values the shoes more than he does the eggs. The cobbler feels the same way; he values the eggs more than he does the shoes. And in the end, both parties are better off than before the trade occurred.

    The scenario is no more complicated in a moneyed society, either. If the farmer desires shoes, he goes to the nearest shoe store and picks out a pair he likes. He then proceeds to pay the storeowner for them with money (and for the sake of this article, I am not going to differentiate between sound money and fiat money, the latter of which cannot really be considered money at all). Now, in this case, the farmer still values the shoes more than he valued what he traded in order to get the shoes, in this case money, in the other, eggs. And the storeowner still values what he gets in exchange for the shoes more than the shoes themselves. If either party did not agree with the trade, the trade would not occur, and similarly, if either side did not feel like he was getting the better deal, the trade would not occur either.

    It is the principle of mutually beneficial trade that leads to consumer power. So long as the consumer maintains the ability to refuse a transaction, he is just as powerful as the other guy, even the supposed all-powerful capitalist pig. And it must be pointed out that the only way a consumer loses this ability is when the government forces such a transaction, such as the payment of taxes or the forceful purchase of a good (the recent debacle over health insurance comes to mind). In these cases, the government forces the citizen to participate in a trade that would not normally occur. And while the government, or government subsidiary, may be better off afterward, the citizen has a net loss. This is fairly obvious when it comes to taxes, but even in the case where the government forces its citizens to buy health insurance, ostensibly to better their lives, the people who did not have health insurance (and it does not matter the reasoning behind such a decision) are now worse off because they are forced to do something they did not want to do in the first place. It is only through the government that anyone, or any business, can benefit at the expense of someone else.

    Consumers can choose to purchase, or not to purchase, a good for any reason they want. This is why companies try their best to appease their customers; if they did not, if they sold goods the people did not want, or if they had horrible customer service, that company would lose money, which is a great incentive for them to change their practices. After all, earning a profit is one of, if not the biggest reason to create a business, and it is the best gauge of how well that business pleases its customers.

    And now, at this point, our theoretical opposition usually says:

    That’s fine in theory, but that’s not how things work in real life. In real life, the people are beholden to the businessmen. They need to eat, don’t they? Businessmen can charge whatever they want for whatever they sell, because the people will buy the product no matter what.

    Clearly, this thesis fails the theoretical aspects of human action and voluntary interactions per our earlier proof. But there are many real life examples of how the little people in the economy won battles against their seemingly insurmountable enemies – the corporation.

    New-CokeOne classic example is the tale of New Coke. In 1985, Coca-Cola developed a new version of its famous soda, which, by all of their internal company measurements, supposedly tasted better than the original formula. Coke, excited by the prospect of regaining market share lost to its competitor, Pepsi, quickly debuted the product to the public as New Coke. Public backlash ensued; in June of that year, the company received 1,500 calls per day from angry customers who wanted their “old” Coke back. Protest groups were formed outside the world headquarters in Atlanta, Georgia. And by July, Coca-Cola reintroduced their classic formula to store shelves across America. Did the government ever get involved, claiming that Coca-Cola “illegally” attempting to increase its market share? No. The simple fact that New Coke threatened to affect the company’s profit margin in a negative way was enough for them to correct the decision to drop their classic formulation. Eventually, Coca-Cola dropped the entire New Coke/Coke II product line and focused solely on the product its customers wanted.

    Netflix-QwiksterBut this isn’t just a thing of the past; more recently, the CEO of Netflix, Reed Hastings, thought it would be a good idea to split the company into two, one focusing on DVD rentals (Qwikster) and the other on online movie streaming (Netflix). On paper, this would have theoretically resulted in higher earnings for the company, as customers would now need to register for two separate sites. What Netflix didn’t count on, however, was the customer reaction; many people were so opposed to the split they decided to cancel their subscriptions entirely and switch to one of Netflix’s competitors, Blockbuster or Redbox. Netflix’s stock was suddenly no longer the favorite of tech investors, and promptly dropped 14.6% of its value in one day. Netflix got the message; less than a month later, Hastings announced through the company blog that the split would no longer take place and the current pricing structure would remain in tact, giving its remaining customers exactly what they wanted. There was no need for the government to get involved to protect the general public from the greedy leaders of Netflix. The simple desire of Netflix to not go bankrupt was enough for the company to change its mind about the potential split.

    Baltimore-HonThe problem does not need to be nationally recognized either; consumers also have power within their own community. The owner of Café Hon in Baltimore, Denise Whiting, trademarked the Baltimorean term of endearment – hon. Baltimore was outraged; “hon” is a part of their culture and a defining element of the city. While Whiting claimed she was merely trying to protect her business from competition (something that could never be accomplished without a government infringing on the property rights of everybody else), she went beyond her stated goal and seized thousands of dollars of merchandise from a small business at the airport, threatened to sue the city for using the image of the Baltimore Hon on its metro cards unless she had creative control, and even sent a cease and desist order to the website WelcomeToBaltimoreHon.com. Protests were organized, but Whiting’s abuse of the trademark continued. The people didn’t give up, however. The entire community of Hamden boycotted Whiting’s restaurant, and through the power of blogging, the quiet, background protest spread throughout the city. About a year after the protests began, the business began failing so badly that Whiting enlisted Gordon Ramsay’s help through the show Kitchen Nightmares. Over the course of the show, Whiting was forced to realize how badly viewed she was within the community and that it was her actions with the trademark, and her actions alone, that caused the dissention, and unless she gave up the trademark, her businesses were never going to be profitable. Whiting publicly apologized on Baltimore radio, and gave up her claim on the trademark. Even though the effects from the protests did not appear immediately, they did force Café Hon to completely reevaluate its business decisions and eventually, the community won.

    True capitalism empowers the individual; it is only through the government and its monopoly of force that any business can benefit at the expense of its customers. Profits should not be demonized; in a real free-market – that is, one free from government intervention, regulations, and bailouts – profit is the best measurement of a business’s ability to please its customers and motivates the business to do so. It is the government that has always been the enemy of freedom for the little guy, and should never be confused as their protector.

  • Austrian-vs-Chicago

    Austrian vs. Chicago Schools on Law and Economics

    READINGS

    “Coase and Demsetz on Private Property Rights”
    Block, Journal of Libertarian Studies 1, no. 2 (1977)

    AUDIO

    Law and Economics
    Hans-Hermann Hoppe, Mises University (2003)

    STUDY QUESTIONS

    1. What was Ronald Coase’s seminal article in law and economics?
    2. What is Coase’s argument by which (with low transaction costs) court assignment of liability is irrelevant to production decisions?
    3. How does Block’s example of a flower bed (with high sentimental value) upset the Coasian analysis?
    4. Why does Demsetz think that a volunteer military will yield the same personnel as a draft with the right to purchase exemptions?
    5. How does Block’s focus on psychic income relate to Demsetz’s example?
    6. How does the “let-him-buy-his-way-out” scheme square with traditional notions of property rights?
    7. Do libertarians think businesses should be compensated if they are injured by competitors?
    8. What is the point of Block’s example of “torture rights”?
    9. Why does Block think that State judges might not be the best at estimating costs and benefits?
    10. What other objections does Block raise to the Coasian prescription for cases of high transaction costs?