Competition, Monopoly, and “Loving Mises to Pieces”


In his treatise “Human Action”, Mises devotes a short chapter (5 pages) to explaining what competition is, and what competition is not. He combats the misunderstanding of markets that is at the root of Antitrust legislation and interventions to break up “monopolies.” The fact that monopolies exist is not a  problem as long as new competitors have the opportunity to pitch their ideas to the consumers without legal barriers. The consumer decides how successful an entrepreneur will be based on how well the entrepreneur serves the customers. As Mises puts it, a poet may have a monopoly on his own rhymes, but that doesn’t mean he can command the market for them.

You can read Mises’ excellent chapter on competition here on Liberty Fund’s Online Library of Liberty.

Kudzu- The Price of Liberty

In a recent book discussion on Robert Higg’s Crisis and Leviathan, one of the participants likened Big Government to Kudzu. She and her family recently returned from a road trip to the east coast, where she saw the destruction that this non-native and highly invasive plant wrecks on the ecosystems it enters.

Kudzu Vines

     Like this invasive plant, no matter how hard we push back against the growth of government the battle never ends. The metaphor is especially striking when we consider the damage that expansive government causes to the parts of the economy that it infiltrates. Not only does government grow at an arresting pace regardless of who is in charge (one of the main points of Crisis), but it also steals resources from productive activities. The Kudzu takes nutrients, sunlight, and water from desirable plants and “crowds out” the growth of other plants in the same way government taxing and spending divert private resources from voluntary exchanges to feeding a bureaucracy. The more resources the government has, the more it demands of the society around it.

But the story for an economy is sadder than the story for the woods, because economic resources are not provided by nature and must be produced by someone’s ingenuity and labor. Kudzu simply takes the rain and nutrients provided, but government takes resources that have been created. Not only is private activity stifled, but it is also discouraged by a system that punishes those who work hard and innovate. And so, we set ourselves to the task of battling this ever-present weed known as Leviathan (Big Government), understanding that it will keep trying to expand its reach. As another participant in the discussion observed, the kudzu metaphor is consistent with the well-known saying “The price of liberty is eternal vigilance.”

Competition: The Heartbeat of Innovation

Here my first letter Letter to the Editor, published in the Indianapolis Star:

Like Richard Harris (Letters, July 5), I agree that our nation’s health-care system is flawed and in need of a major overhaul. But instead of putting more restrictions and price controls onto an already heavily regulated part of our lives, we can improve health care by giving doctors, hospitals and insurance companies the ability to compete to serve their customers in a free marketplace.

As we’ve seen in the rising cost and plummeting quality of public education, any time the government starts pumping money into a system, fraud, waste and inefficiency are sure to result. A bureaucracy can’t know what is best for each person. Peeling back the mountains of pointless paperwork and burdensome regulations will free up doctors and nurses to spend more time treating patients, and will make it easier for hospitals to compete with one another to provide the best care. And that is really the heartbeat of innovation.

Katie D’Amour

A big thank-you to Dox Boudreaux of Cafe Hayek for his Letter-to-the-Editor writing workshop at FEE’s Communicating Liberty conference! His encouragement and advice were inspiring.

The Source of All Reform

Bastiat is a treasure trove of wisdom, and a quote of his that I recently came across in The Man and the Statesman reads:

“Trade is the exchange of the superfluous for the essential.”

In ten words, he distilled the amorphous verb “trade” (which has 11 different definitions in the OED) to its most essential form- it is the means by which we can improve our standards of living.  Each person focuses on the tasks he can do most efficiently compared to others and then trades his excess for the other things he needs to live.  Bastiat’s fervent belief in the power of free trade to make people better off was the driving force of his lifelong battle against protective tariffs and embargoes.  He was convinced that freeing trade, especially with England, would help alleviate poverty in France. The Mercantilist policies of aggressive trade regulation were crippling France’s economy. In his correspondence with British freedom-fighter Richard Cobden, Bastiat explains his frustration with the anti-free trade public sentiment and his enduring devotion to freedom:

“And I want not so much free trade itself as the spirit of free trade for my country.  Free trade means a little more wealth; the spirit of free trade is a reform of the mind itself, that is to say, the source of all reform.”

Why Are You Breaking Windows?

Because it stimulates the economy!

No, not really. It is an allusion to a prevalent economic error known as “The Broken Window Fallacy,” a term coined by French economist Frederic Bastiat (1801-1850). This fallacy asserts that destructive activities, like war, natural disasters, or children with wayward rocks stimulate the economy because resources have to be expended to repair the damage.

In Bastiat’s essay “That Which is Seen, and That Which is Not Seen,” he debunks this myth with a story of a shopkeeper whose careless son breaks a window. One might say that the glassmaker is better off because he must be paid to replace the window, but Bastiat insists that there is more to the story.  Because the shopkeeper must have his window fixed, he is unable to buy a pair of shoes or  a new book. If the window had not been broken, the shopkeeper could have had new shoes and a window.  In the same way, large-scale destruction diverts money and supplies from productive activities to the rebuilding efforts. As Bastiat put it, “Society loses the value of things which are uselessly destroyed.”

By ignoring the less obvious implications of economic activities, we fall into the trap of missing critical consequences of these actions.

“Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.”

I highly recommend reading the entire essay, even if you’ve read it before: That Which is Seen, and That Which is Not Seen; by Frederic Bastiat.