- Capitalism and Alternatives -

Untangling the Misconception of 'Competition'

Posted by: Joel Jacobson ( none, USA ) on March 23, 1999 at 11:33:19:

This post is in reponse to a post further down from RD regarding anarcho-capitalism and the production of private law by independent firms. Due to its importance I thought I should post it by itself:

: Wealth would out.

See below.

: : What to do? Well, in order to avoid bankruptcy, they would have to go to some arbitrator that both agreed upon. As courts and arbitrators are economic goods just like food producers entreprenuers would see profit opportunities in fulfilling the market for justice. Judges and courts that developed the best reputations for fairest arbitration would have the highest profit margins. What soon would happen is taht bodies of rules would develop taht would make this sort of situation moot and pointless. The Bobs of this world simply would lose money and go out of business or change the operating practices of their firms.

: Except that rich emplyers would still have more money that union agitators, and would win most of their cases.

No, in such a society what has happened is taht the intra-societal "rules of engagement" have changed. Before, coercion was limited through "legitemization" and relegated to what we call government. In anarcho-capitalism coercion and the potential thereof are completely legitimate in all situations. Resorting to force is no longer considered the quasi-mystical property of what we call our government, and the cultural mores, rules, and customs that are what really holds society together will reflect as such. Also, see below.

: : As to your Lancaster example the same could be said. The marginal costs for such "smashing" would go as follows: The profits are high enough, through high prices resulting in high profit margins, in which place another corp would buy up terriory to capture said profit potentials and protect their property according to the Jim/Bob narrative. Or the profits margins are not that high in which case the prices are not that high, in fact, probably quite lower than you currently are paying for under government control. It always strikes me as astounding taht people see the government paying for something and then immediately think it's totally free. That's called anthropomorphism or animism.

: No, all I would need to do would be to spend enough money to make it look an unsound investment to compete with me.

Absolutely true. And this amount would have to exceed the potential profits from another firm's entry. The amount spent would always outweigh the potential gain from such an expenditure; now that's not very profitable, is it? Artificial monopoly NEVER works; only natural and state monopoly are efficient.

: And as for government, I'm not talking about money, I'm talking about power, here, and these firsm would become governments without teh slightest hint of democratic contraint.

No. See the market analysis below.

: BTW- The private Law thing doesn't work because it always assumes a law-enforcement firm, should I have , as a Chemical producer capitalist, a private enforcement branch, not in competition with others, I could use lethal force fairly quickly, and efficiently. In fact, its cheaper for me to cut out the middleman.

Here's a market analyses of how the private law market would look:
1) it is a fairly homogenous market w/o differentiation -- violence
2) entry and exit is almost costless -- guns
3) high price transparency -- consumers swtch costlessly in reponse to producer actions
Thus, the market would have numerous smaller firms competing with each other on price and with a great need for committed customers. What would likely happen is firms would segment themselves into specialties ie. large corps, working-class neighborhoods, traveling professionals, etc. Since law enforcement is mainly used as a deterrent to some intrusion, contracts will be signed with a specific period predetermined. For instance I would sign with Jim's for $100 to protect me for the next year with some sort of escape clause should Jim not live up to his agreement. Finally, Jim would have this same contract with many other such individuals, say 10,000 bringing his total revenues to $1,000,000. On the other hand, JoelCorp is a wealthy company with a large amount of assets; the size of JoelCorp requires a much larger presence of coercive powers in order to deter potential harm to the corporate property. Bob's would contract with JoelCorp to provide protection for a year at the price of $1,000,000. Funny, the total assets of JoelCorp are pretty much equal to the total assets of those protected by Jim's.

Amazing. Why? How can this happen you ask? It must be some sort of magic. No. Because we assume, reasonably, that the cost of protection is directly proportionate to the effort required to maintain said protection. If the gain from encroaching upon a "property" outweighs the cost then there will be incentive to do so. Otherwise, not. Suppose taht Bob already has a contract with JoelCorp. Jim can evaluate entry into the market based upon potential profit margins and chooses the most profitable. Bob is already receiving $1,000,000 from JoelCorp and Jim can underbid Bob and offer $950,000 or he can contract with numerous smaller holders; he chooses the later. Now Jim has to set his price at the same profit margin as Bob, any higher and Bob or another supplier will simply expand into the market and take away Jim's business. Profit margins will stabilize across the industry according to level of performance and assets protected.

So what if JoelCorp buys out Jim and tries to take over Jim's protected contractees?
First, any contractual failure on Jim's part will immedately signal his untrustworthiness to all his other agreements. They immediately realize their danger and sign with another service provider. Immediately, Jim has lost 100% of his revenue, and which JoelCorp must pay him over $1,000,000 to make up said revenue. But now JoelCorp has increased its costs by the exact same million and for what? In order to maintain a profit margin of 10% the increase of $1000000 must be offset by an increase in revenues of $100,000. And where is this going to come from? Anwer: nowhere, except war. And war is, indeed, the hell of it. Prior to such action, both Jim and Bob had certain measurable costs while bringing in the said $1,000,000 in revenues each, but with the ensuing war these factors all change. The two particular companies Bob and Jim are obviously more dangerous to work for than their competitors and in order to work for these two potential employees will demand higher wages. Without increased wages employees will simply go somewhere else. So, now Bob and Jim must further increase their prices to JoelCorp or go out of businesss; JoelCorp, in turn, must further increase it's revenues to retain any protection at all. And so the vicious cycle goes.

Now if we add in the factor of the demystification of violence we approach a situation making said violence virtually untenable. Force is no longer the 'sanctified' domain of 'the government', 'big brother', 'the state', etc. and is simply another action such as selling lemonade or writing software programs. Added to such analyses of Bob and Jim we will have individuals protecting their own properties with their own gun, grenades, and rocket launchers. Most likely they would never see use. War is always bad for business -- except for government and the arms industry; as someone once said, "War is the health of the State". Companies will always lose given socially 'unjust' actions based upon the morals and values of the individuals, including capitalists, inhabiting a particular region. Suppose a corporation makes the irrational decision to start a war. Businesses in the area will see this as a signal of the particular corporations lack of desire to 'play by the rules', as well as see the danger to the properties surrounding the particular martial actions. Other capitalists will, most likely, be the ones hurt greatest by such immoral actions and such renegade companies will find themselves discriminated against by other companies.

As David Hume memorably pointed out "all values are governed by opinion" -- individual opinion influenced by social interaction, I might add. And that's always the way it's been. The point of this post is that simply it is not some corporate interest taht simply controls anything or ever could do so; that never was the case anyway. With the demystification of violence we have come to realize that now, as always, we truly as responsible for our actions and how we behave as moral individuals. Interestingly enough, the whole analysis and success of all parties depended on their trustworthines and, thus, the desireability to do business with them.

Government produces all order.
Under anarchy there is no government.
Therefore anarchy is chaos.
In Washington there isn't any plan
With "feeding Joel" on page sixty-four;
It must be accidental that the milk man
Leaves a bottle at my door.

It must be accidental that the butcher
Has carcasses arriving at his shop
The very place where, when I need some meat,
I accidentally stop.

My life is chaos turned miraculous;
I speak a word and people understand
Although it must be gibberish since words
Are not produced by governmental plan.

Now law and order, on the other hand
The state provides us for the public good;
That's why there's instant justice on demand
And safety in every neighborhood.

Follow Ups:

The Debating Room Post a Followup