 These are all good examples that I'm going to talk about of research, published research, some of it's mine, some of it's other people, and some of the other people don't call themselves Austrians, but their literature and their approach and the substance of what they have done in their research is totally consistent with what any of the Austrian economists would do, even though they don't call themselves, and it's basically studying the reality of markets, and why this is important is that to give you a little bit of a historical background about the economics profession, if you were to read a book on economics in the 19th century, in this country, turn of the 20th century, it would probably be called Principles of Political Economy. If you were a textbook author, that's what the title of your book would be, or Political Economy, because there was an understanding that you couldn't really understand economics without understanding the interaction between the state and the economy, and so political economy was what was studied. David Ricardo in the early 19th century, Principles of Political Economy, all the way up through, even today there are still books with titles like that, but that all changed because of the sort of the quantitative revolution in economics after the beginning of the 20th century, which really didn't take hold in the economics profession in a big way until about the 1950s, but economics became quantitative and dry and ahistorical to a large extent in a lot of the literature, and there was a separation or a divorce from the interaction, the study of the interaction between the state and the economy, and all of the main journals, not all of them, but most of the main journals and publications in the economics profession were captured by Keynesians and other types of statists and interventionists, and these were the days when people like Ludwig von Mises could not get a job in America. Friedrich Hayek, when he came to this country, also could not get a job. The job that he did get at the University of Chicago was not even in the economics department. Milton Friedman made sure that he didn't get a position in the economics department. He was in the committee for a social, something or other, I forget what it was, social studies or something like that, and it was an interdisciplinary department at the University of Chicago, and so even people as brilliant as that, Rothbard. Rothbard taught at an engineering school. He taught students who, you know, 99% of which could care less what he had to say about anything, until finally he got a private donor to donate a lot of money for his position at UNLV in the last years of his life, and so what happened was in the 1950s there was this big sort of a revolution in economics, the Market Failure Revolution, and the literature was very mathematical, very ahistorical, that is, you know, it was stripped of any historical context in terms of studying markets, and stripped of any political context of the rule of the state. It was pure theory, and there arose a gigantic literature on market failure, and the literature was one big illustration of what I talked about in my lecture the other day of the Nirvana fallacy. Once the perfect competition model was adopted, and once competition was redefined as many firms, perfect information, homogeneous products, homogeneous prices, costless entry and exit, then it was easy for the mathematical model builders to build models of market failure, because they would set up these equilibrium conditions of a perfect world where there was perfect information, homogeneous products, homogeneous prices and all that, and then they would just look at any market and say, well, that market doesn't look anything at all, the perfect market, therefore the market fails. So the measuring rod of market success or failure was Nirvana. If the market is not like heaven on earth, it fails, and then there was a corollary to that. The corollary was that government never ever fails when it attempts to regulate markets and make them better, and so there was no similar scrutiny applied to government intervention in the form of regulation or government controls, and that is why, by the way, my two old professors of mine and graduate school, James Buchanan and Gordon Tullock, founded the public choice school. It was the economic analysis of political decision making. They started that up as a counter to the market failure research of the 50s that they thought was just grossly biased in a statist direction, and really not just biased, but dishonest, really dishonest to ignore hundreds of years of scholarship on how government actually operates and to just assume that government regulation would correct the so-called market failures. But in addition to that, in addition to these mathematical models of market failure, I remember in graduate school having to suffer through reading through a book by Francis Bader, B-A-T-O-R, on market failure. It was sort of a survey of some of this major literature, and it seemed like all of it came out of Harvard and MIT, the two schools, the people who train the Paul Krugmans of the world. It all came out the same two places, but it was very influential. But anyway, in addition to this, along came maybe sometimes through the textbooks and sometimes through books written by various authors and sometimes in journal articles, a long list of stories about market failures, stories illustrated with some economic analysis and some statistics to make the point about market failure. And so what I'm going to talk about is some of these stories that have been told about market failure that I think have been proven by myself and others to be myths, just tall tales and untruths about the evils of markets. And of course, along with these tall tales, there's always just the assumption that the perfect government will correct these problems. The first one is antitrust. And as I said, there's a gigantic literature on antitrust. The Journal of Law and Economics in the 60s, 70s, and 80s and into the 90s published just hundreds of articles, most of which were very well done, very interesting articles on how antitrust regulation has actually been enforced. And the late Ronald Coase, the Nobel Prize winning economist, was the editor of the Journal of Law and Economics for decades. And I've quoted him in some of my publications as saying with all these articles published on government regulation, including antitrust regulation, he said, it's hard to find one of them, one of them that does not show that consumers were actually harmed by government regulation, even though it's always done in the name of consumers. Every one of these studies published in the Journal of Law and Economics showed that companies were being sued for cutting prices, expanding production, innovating, creating new products, something like that. That's why they were sued by the government or by a private competitor. And so one of the things that always bothered me about this is that even the Chicago School economists would then say, but there was a golden age of antitrust. There was, in the late 19th century, there was rampant monopolization of American industry, mostly few mergers, and this was causing monopoly in the 1880s primarily, because there was a merger wave in the 1880s, and government on its white horse came and rode into town and saved the day with antitrust laws. Some friends of mine who in the Reagan administration worked at the Federal Trade Commission in Washington, D.C., worked in a building where out in front of the building there was a gigantic statue of a horse and a big muscular man like this with his arm around the horse. And I remember asking Bruce Yandle, my old friend Bruce Yandle, what is that about? What is this horse in a guy wrestling a horse wrestling? And he told me the horse is runaway government and the man was an economist, but that's not what it really is. What it is, the horse is supposed to be runaway wild capitalism and the man is supposed to be benevolent government taming the horse. So that's the sort of imagery the state puts out there. So I didn't buy this story that there was a golden age of antitrust where the man and the white horse rode into town and saved the day, and then for the next 120 years they screwed up. All these hundreds of articles published about the screw ups of antitrust policy making things worse rather than better. How could that be? How could it be that this law was passed to make markets work better, but then despite our best efforts for 120 years they made markets worse? According to all this literature, even liberals like Lester Thoreau was so frustrated that he argued for the complete abolition of antitrust in a book in the 1980s. He was the dean of the business school at MIT at the time. So I looked into the origins of antitrust myself and found that this was a long time ago. It was almost 30 years ago, and I was still in elementary school. I was boy genius in elementary school back in those days. But I found that no economist had ever looked into it. They just repeated this slogan, rampant cartilization, rampant monopolization. No economist had ever dug up one statistic to back up the idea that prices were rising in these monopolized industries or that output was being restricted like their theory says. Not the Austrian theory of competition, but the mainstream theory. So that's what I did. I looked into it. I did the research, and I got the statistics, published an article in the International Review of Law and Economics. And what I found is that in those industries that were being accused by the US Congress of monopolizing industry in the decade prior to the 1890 Sherman Act, the Sherman Antitrust Act was passed in 1890, named after Senator John Sherman, the brother of General William Tecumseh Sherman. So the Sherman boys from Ohio were two evil bastards in my book. That's the scientific term. But anyway, it was passed in 1890. The two measuring rods, according to the mainstream theory of competition and monopoly, of monopoly, they raised prices and they restrict output. That's what the theory has always said. And so what about output? What was going on? Well, this was what economists call the Second American Industrial Revolution, the post-Civil War era. They were taking off of Vanderbilt and the railroads and the steel industry and Andrew Carnegie and all these inventions that were occurring, electricity was becoming commercialized. And so the economy was growing. But on average, these industries accused of restricting output and monopolizing American industry increased output in the decade prior to the Sherman Act by 175%, which was several times faster than GDP, several times faster than GDP. And as far as prices, this was a period of price deflation, the consumer price index, which the government did calculate for those days, according to the government, went down by about 7% during the decade prior to the 1890 Sherman Act. But in every case, the prices in these industries accused of being monopoly went down faster. So these industries were the fastest growing, most innovative, most vigorously price cutting industries in America in the entire decade prior to the Sherman Act. And then I got the same data for the decade after the Sherman Act and found the same trends continued. They continued to expand output, continued to cut prices faster than the CPI was following for the next 10 years. And so really the only real objection I had to this was the old silly argument about predatory pricing, where I've had economists and others saying, well, weren't they predatory pricing? Well, you're talking about people like John D. Rockefeller here. One of these industries was the oil industry. And John D. Rockefeller started his company in 1866. And the results of his business genius, he and his business partners like Henry Flagler, was a perpetual decline in the price of refined kerosene and other refined petroleum products until for about the next 50 years. So in order to buy this argument that this was predatory pricing and not just vigorous competition, you'd have to entertain the notion that people like John D. Rockefeller were so foolish as to think that they could cut prices below their cost and lose money on purpose for 30, 40, 50 years in hopes of someday jacking up the price to the sky and making a killing. And this was at a time when what was the average lifespan? 45 back in the middle of the 19th century in the United States. So that makes no sense at all. And that's just not what happened. And another thing I did in this research is I wanted to know what the popular press was saying about all this. So I had my research assistant at the time read through in the library and back in these days there was no internet. And so he had to get what was called microfilm. It was just a step up from stone tablet reading. And you go to the library and you go and you open some drawer and there's this little plastic film that you have to hook up to a machine and you crank it by hand. And there's some sort of microscope that you look through and you can read these old newspaper articles from the 19th century through this. And so he did that. And I wanted to know what the New York Times was saying about all this. It's Sherman and he trusts that. And the New York Times was for the Sherman Act. But then they totally changed their mind. And I think they really figured it out perfectly because Sherman himself, Senator John Sherman, Sherman Act passed in July of 1890. In October of 1890, the McKinley tariff bill passed, which was one of, if not the biggest tariff, one time tariff increases in American history up to that point. So the huge tariff increase, the sponsor of that legislation was Senator John Sherman. So the textbooks, the economics textbooks, one of them that I cited called Sherman's Law, the Magna Carta of Free Enterprise, the Sherman and Trust Act. So here's the savior of the consumer passing the Sherman Act in July and the same guy passing the biggest tariff increase in history in October, you know, or having his name as a sponsor of that law. That made no sense at all. That's not what was happening. So the New York Times concluded that what was going on here was the real monopoly is the tariff. That's the real monopoly powers created by the tariff. And the Sherman Act was just a political fig leaf to divert the public's attention and to blame the high prices that would come from the tariff increase on big business, you know, the greedy businessmen. And so another research article I did was on, it was a co-authored an article with Don Boudreau that was in the review of of Austrian economics back when the Amisis Institute still published it. And we looked at state government antitrust laws. There were state government antitrust laws that were passed in the United States before the federal law. It was like in the mid-1880s. And we found the same story. It was mostly the farmers and pig farmers and the butchers of the Midwest that were unhappy because such things as, you know, the armor and swift and the big four meat packing companies became centralized in Chicago. And being centralized in Chicago, they figured out that this was very economical to slaughter the cattle in Chicago, put them on refrigerated rail cars. And back then refrigerated rail cars was railroad cars with the doors open in the wintertime, pretty much before they had big giant blocks of ice and things like that and shipped them out, shipped dressed beef out into the hinterlands. So all of a sudden the local butcher shop who was selling beef for maybe $2 a pound had beef arriving in town selling for 50 cents a pound from Chicago. So they immediately got Senator George Vest of Missouri to set up a commission, the Vest Commission to investigate the beef trust. And they said something must be done about the beef trust. It's selling meat too cheaply. And so that was the origins of, that was the real origins of antitrust in America. It was the attempt to prop up prices of agricultural goods in the American Midwest. And then that led just a few years later to the federal antitrust law. So I concluded it's a myth that there was a golden age of antitrust where the government came to the rescue of the consumer. It always was a protectionist racket design to protect businesses that were either unwilling or unable to cut prices to compete with their rivals, with their superior rivals, their more efficient rivals. And that's what all that literature in the Journal of Law and Economics says. It says more often than not that there's an antitrust case. Who's behind it is one competitor who wants either to sue personally or get the government to sue their competitors for what? For cutting prices, cutting costs, innovating, creating new products, out competing them. And that was always true from the very beginning. There never was any golden age. And the next myth is a myth of natural monopoly. And the story that's been told for many years is that in industries where there's a heavy fixed cost like electricity, where you have to build a power plant before you sell one kilowatt of electricity, once you're in business, once you start selling electricity, the average cost, total cost per unit, once this average cost is pretty much fixed, and the total cost pretty much fixed, you spent a billion dollars on the power plant, and then you start increasing the denominator here. Q customers, well, the cost declines very rapidly. So you get a long run average cost curve like that, economies of scale. And the story is that, well, one company is likely to get there first right here, this low part of the average cost where they can sell, maybe that's selling electricity for one penny per kilowatt, and they will therefore be able to price everybody out of the market. And you'll have a monopoly, a natural monopoly. And so the story then says the government, governments then stepped in because of this phenomenon that was supposedly was happening. This was supposedly happening, monopolies everywhere, in electricity, natural gas, water supply, and so forth. And so the government once again rode in the town on the big white horse that is now a statue in front of the Federal Trade Commission building, saved the day. And how did they save the day? Well, the story says they granted a legal monopoly to this company, a legal one. They made it illegal for anybody to compete with that company. And because they wanted it to get this big market and have economies of scale and low cost, but then they didn't want them to charge this price up here. And if I were to extend this, you know, all the way up there, they didn't want to charge a monopoly price. And so in the public interest, they will set some price around here somewhere, where it's enough for the company to make money so they'll have some retained earnings they can spend to build a bigger plant when the population grows and so forth. And you know, perfection, pretty much perfection. That's basically the theory of natural monopoly. Well, it never happened that way. There never was any mass creation of monopolies in the economies of scale industries like this. And as one piece of evidence of this, I'm going to quote an article by the economist Harold Demsets, who did the historical research on this. And here's one passage from this article by Demsets. Six electric light companies were organized in one year, 1887 in New York City. 45 electric light enterprises had the legal right to operate in Chicago in 1907. Prior to 1895, Duluth, Minnesota was served by five electric lighting companies and Scranton, Pennsylvania had four in 1906. During the latter part of the 19th century, competition was the usual situation in the gas industry in this country. Before 1884, six competing companies were operating in New York City. Competition was common and especially persistent in the telephone industry. Baltimore, Chicago, Cleveland, Columbus, Detroit, Kansas City, Minneapolis, Philadelphia, Pittsburgh, and St. Louis had at least two telephone services in 1905. So that's what was happening. What was not happening was this. This never happened. The monopoly franchises created the monopolies. It wasn't competition in the free market. There was nothing natural about that. And in this article in mind that I put on the suggested reading in my article, The Myth of Natural Monopoly, I cited an old book by an economist named George T. Brown titled The Gaslight Company of Baltimore. And because this was one of the very first government created natural monopolies, in the United States. And it became a model for other politicians all over the country. And here's how George T. Brown explained how the people in Baltimore, Maryland came to be subjected to a monopoly in the gas light service. This is before electricity even. And so he says this, when monopoly did appear, it was solely because of government intervention. For example, in 1890, a bill was introduced into the Maryland legislature that called for an annual payment to the city from the consolidated gas company of $10,000 a year, and 3% of all dividends declared in return for the privilege of enjoying a 25-year monopoly. So the government said, we will give you a 25-year monopoly, renewable, can be renewable, but we get 10 grand and 3% of the revenues every year. So it was a tax. It was a way of taxing the population. And it was a clever way of taxing the population because when the taxpayers, if the taxpayers were to complain, who are they going to complain about? The company. They're the ones who are charging the price for these things. So they're going to blame greedy business people for the higher prices. When the prices go up, not the government, but it was the government that created the monopoly. But prior to that, what was happening in Baltimore was similar to what Harold Demsett says was happening all over the country in the United States, six, eight, 10 competitors competing for business all over the place in these areas. And there's another old economist who wrote an article in the 1940s that I ran across named Horace Gray. And he had a funny line in his article. He said he pointed out how virtually every aspiring monopolist in the country tried to have his company or his industry designated by the government as a public utility. And this included radio industry, real estate, milk, air, transport, coal, oil, agriculture. So once they started this up, everybody was all these business people were saying, hey, what about me? I'm natural too. Make it illegal to compete with me. And it didn't all work, of course. And then now modern research, modern economic research has backed this up. This never happened this way. This was always just the abolition of free market competition. And in its place, government created monopoly. The late George Stigler, when he won the Nobel Prize in the 1980s, was credited with one of the reasons he was given the prize. The Nobel committee cited his work, his early work in the 1960s on a statistical analysis of the public utilities in the era of the natural monopolies, where he found once the government did this, that controlling for all the other determinants of the cost of electricity, the cost of natural gas, whatever, the effect of regulation was for prices to go up, not down. And that pretty much is what you would expect, understanding the story I've just told. And then there's another economist who was actually a student of Stigler's named Greg Gerald, J-A-R-R-E-L-L. And he published a series of articles in the Journal of Law and Economics showing that when the state governments took over the regulation of so-called natural monopolies, like we do in Maryland, I mentioned Baltimore, Maryland, it's a state regulatory commission that regulates electricity rates. That happens in most states in the United States. The effect of that, this was between 1912 and 1917, if this happened. So the effects of that were to raise prices by 46% and to raise profits by 38% while reducing the level of output by 23%. Isn't that what the mainstream of economics profession says is the effect of monopoly? A sharp raise in prices and a sharp reduction in production and output. That's exactly what happened with the advent of state regulation. There's one economist who would be very friendly to the Austrians. He would fit in at the Austrian Scholars Conference, now known as the Austrian Economic Research Conference. His name is Walter J. Primo. If anybody's interested in this area of research, his book is entitled Direct Utility Competition. And I remember reading, I was kind of interested in this whole area of research. I was thinking about it as a dissertation topic when I was in graduate school back 162 years ago when the Civil War was still raging in America. Because I was kind of interested in this. And I remember reading all these articles, dozens, it seemed like. He was a very prolific writer in all these economics journals that were almost impossible to read for a first-year graduate student, like review of economics and statistics and econometrics and publications like that. And they were all about the electric utility industry and the phenomenon of there were several dozen cities in the United States that didn't do this, that didn't establish that government created monopolies for electricity. They allowed direct competition and they didn't say, it wasn't the competition where they said, okay, company A, you take the east side of the city, company B, you have a monopoly on the west side of the city. It was company A, company B, and anybody else can come in and compete for the whole city if you want. And whoever offers the best deal, that's who's going to sell us electricity. And so in his book, which is based on all these statistical studies that were published in all these peer-reviewed journals over the years, I'll read off a couple of his shocking revelations, shocking conclusions. The rival electricity, electric companies compete vigorously through prices and services. Who would ever have thought if you allow companies to compete, they would compete. Customers have gained substantial benefits from the competition. Contrary to natural monopoly theory costs are lower where there are two firms operating. Contrary to natural monopoly theory, there's no more excess capacity under competition than under monopoly in the electric utility industry. The theory of natural monopoly fails on every count. Competition exists, it does exist. Price wars are not serious. There's a better consumer service and lower prices with competition. Competition persists for very long periods of time and consumers themselves prefer competition to regulated monopoly. Who would ever guess that if consumers would prefer competition to monopoly? And so it's only the fog of economic theory that can make you stupid about this. If you read these theories of natural monopoly, if you read the reality of it, it makes perfect common sense. These conclusions of Walter Primos make perfect sense. That's how competition works. So that's the natural monopoly myth. Another myth, I'm going to just, the topic for today is anti-market myths. Another myth has to do with externalities in the literature. And back in the 1960s and 70s, you picked up principles of economics book. And when you get the chapter on external costs and external benefits, market failure, it was very popular in all the textbooks to use several different examples in all the textbooks. One of them had to do with bees, bumblebees. And it had to do with the example of an unpriced resource. And the story that was usually included in these textbooks usually about a paragraph or two of market failure was the phenomenon of the existence of beekeepers in the vicinity of apple orchards. And so it's a good thing for apple orchard owners to have bees around because the bees pollinate the apple trees and so you get more apples. And at the same time, the pollen from the apple trees feeds the bees. So you get more bees, you get fatter bees, you get more hunting. And so there's a sort of a reciprocal positive externality involved in having bees around apple orchards. And in a lot of scholarly papers, even there's an economist named E.J. Mead, MEADE, who won the Nobel Prize, he wrote a big long technical paper in the market failure literature about this. This was his main example of the market's failing. And why did they fail is because, you know, the story about positive externalities, you know, the basic story that's told in the textbook is something like this in terms of supply and demand. There's the demand curve, the supply curve, equilibrium price and quantity. But this, with a positive externality, there's an additional benefit, you know, this, you could call this sort of a marginal external benefit curve here. And that should be somewhere added on to the demand curve so that the real demand, you know, would be something like D prime. And the real, the efficient equilibrium quantity would be higher, the Q prime. So in the story, the theory goes that in the existence of a positive externality, like the benefit to the bees of the apple orchard or the benefit to the apple orchard from the bees, there would be an underproduction of both of these things, an underproduction of honey and an underproduction of apples. So E.J. Mead, the Nobel Prize winner, called for government subsidies to beekeepers and government subsidies to apple orchard owners in the name of economic efficiency. Okay, if you want to pursue economic efficiency and reduce dead weight loss and all these bad things, that's what you should do. And then, so this was the prototypical example in all the textbooks of market failure in the existence of positive externalities. And then along came an economist named Stephen Chung at the University of Washington. So he's at the University of Washington and Washington is a big apple growing state. And so Stephen Chung did something that a Harvard or MIT economist like E.J. Mead would never ever think of doing, picking his big butt off of his swivel chair in his office, in his faculty office, and going out and asking beekeepers and apple orchard owners if this is a true story. Is this really how it works? Okay, because think about this. He's, and Chung was a University of Chicago trained economist. So he's, he learned a bit about markets from Milton Friedman and people like that. And if you, and if you learn a little bit about markets, it just makes no sense at all that there's a big pile of money to be made here by getting the beekeepers and the apple orchards owners together. But they're so damn stupid that it's like, it's like there's $10,000 on this table right here. And we all just walk right by it all day long for five days. Nobody bothers to pick the, to bend over to pick it up. You know, just lay right front of your nose. You need some economists trained at MIT to tell you to, to lean over and pick up the $10,000. And so Stephen Chung just, just didn't, wasn't believable. And so sure enough, what he found out in his research, and this was eventually published in the Journal of Law and Economics, in an article called The Fable of the Bees, was, was that for generations, the beekeepers in Washington state and the apple orchard owners had contracts, very explicit, detailed contracts about how much payment the beekeepers would get if they moved their hives close to the certain time of year. They did things like whenever the apple orchard owners would spray pesticides, they had to give two weeks notice to the beekeepers so they would get the bees out of there so they wouldn't be harmed by the pesticide, things like this. So in other words, there's a profit to be made, human beings figure out how to make it. There's no failure here. The only failure was the stupid thinking of people like E.J. Mead and Paul Samuelson who put this in their textbooks for decades and, and miseducated economic students for many, many years. And so The Fable of the Bees really shot down this, this other, this story about market failure. And, and then some years later, two other economists did something similar. Stan Liebowitz and Steve Margolis published an article also in the Journal of Law and Economics called The Fable of the Keys, keys, K-E-Y-S, Fable of the Keys. And, and what this was about is the QWERTY keyboard. Now QWERTY is the configuration of letters on a keyboard, typing keyboard. And some of you are tapping on right now. And so The Fable here was, there was a literature that developed, I think the first article was written in the late 70s about this by an economist, I think his name is Fox. And he, he dug up this old literature about how there was an alternative keyboard, an alternative configuration of the keys. They went by this name. I gave this talk in, in Prague a few years ago at the Prague University of Economics. And when I mentioned his guy's name, the students all laughed because it's a Czech name. I don't know why it's funny that there's, but he, Dvorak. But anyway, there was a Dvorak keyboard and you have different configuration of letters. And there apparently was a United States Navy study that was done of keyboards during World War II to claim that the Dvorak keyboard was superior in terms of efficiency and speed of typing than the QWERTY keyboard. And so this, these economists that started looking into this, especially Fox and Professor Fox from the University of Tennessee, I believe is a recall, claimed that this was a market, a particular form of market failure called path dependence. And what this means that certain types of technologies for one reason or another can be adopted and locked in. Everybody uses it, even though they're inferior to other technologies. And this is supposedly a yet another failure of the marketplace. And so that therefore government should be in charge of deciding what kind of technology we use, make sure we don't fail, which I have always thought is hilarious. Because just think of the technology of public schooling, which has been the same for what, 2000 years, something like that. Those stupid yellow school buses that looked just like they did when I was six years old. This stupid, uncomfortable desks that same thing or the US Postal Service, what's up with that goofy little truck? It was the same 50 years ago, it wasn't that you know, talk about locking in bad technology. The government run air traffic control service just a couple of years ago got rid of vacuum tubes and went digital, you know, air traffic control. Just a couple years ago, not too long ago. But anyway, so they have found this study, US Navy study in Dvorak. And who's Dvorak? Dvorak was a lieutenant commander in the United States Navy who did the study. So that was that led to some questions that, oh, a study, and you know what, he had the patents on the Dvorak keyboard. And so during the war, he's there. He has a patent on this keyboard. And he hires two secretaries who work for him. You know, he's their boss to supposedly do a study of the two different types of keyboards to see who can type faster. And sure enough, they came in and they wrote it up and made it sound very scientific looking. But and so that led to a lot of serious questions. There's sort of financial self-interest involved here. And so once that was discovered who Dvorak was, then they, the Liebowitz and Margolis commissioned their own studies, and they found that the government had already done that. The government had already, even the Navy had already done that years earlier, and found that there really wasn't much of a difference at all. The consumers, for whatever reason, the consumers chose the QWERTY keyboard. They could have bought that, they were competing for a while, Dvorak keyboard and the QWERTY keyboard, but consumers just liked the QWERTY keyboard better. And so it won up. And so it didn't lock in an inferior technology after all. So that's the fable of the keys. Example number four would be the lighthouse in economics. And this idea is associated with Ronald Coase, another Nobel Prize winner, Ronald Coase, who just died last year at the age of 102. And I think he published an article in the Wall Street Journal that year, too. His mind was still going. And he's writing articles published in the Wall Street Journal at age 102. But years ago, another example of market failure that was in all the textbooks, the Samuelson, Paul Samuelson's famous textbook, and a lot of others, of a public good problem was lighthouses. Because once a lighthouse, you build a lighthouse near the ocean, and it spreads this light out for the ships, once it's built, it's impractical to be able to exclude anybody from the light of the lighthouse. How would you exclude anybody from the light who's coming into the harbor? If you did have some people paying for it as sort of members of a lighthouse, you know, a merchant's group or something like that, and one more ship comes along, what are you going to do? Shut the lights off for everybody and have like a bunch of crashes and shipwrecks. So it's impractical, the story went, to think that there would be private funding of lighthouses because it's a classic public good. It's impractical to exclude anybody once you've provided it. So you'd have free riders. You'd have too many free riders, and everyone would think, well, why should I pay? If the other guy pays something for this lighthouse, I'll just sit back and free ride on him. And so for many, many years that was used as a classic example in the textbooks of the free rider problem created by a public good, the light from a lighthouse. Well, Coase wrote this big long article, like 60 pages long in the Journal of Law and Economics once again, where he looked at the history of British lighthouses and in a nutshell, he found that for generations they were funded by private enterprise until the government finally came in and took them over. But for many generations, they were funded by private enterprise and it makes perfect sense. It was a form of insurance. You're having ships, you're paying all this money to have goods shipped to you. Let's say you're a merchant who's going to sell goods coming from America. You're an apparel manufacturer and there's cotton coming from America and you're going to use the cotton to make clothing with in England. Of course, that's what insurance is for, but an extra type of insurance policy is you don't want the ships to come all the way across the Atlantic and then there happens to be a storm on the day you approach the British coast and they all sink in a storm because they can't see the rocks in the dangerous parts of the harbor where they were going to get because it's pitch black and it's dark. And so the lighthouses were sort of an extra form of insurance. And of course, if you did have a shipwreck and you were insured, your insurance rates are going to go up, aren't they? Just like when you crash a car, your insurance rate is going up. And so the coast basically found that the merchants understood this. They understood that it was an economical thing to do to chip in, to chip in, join in and contribute to buy lighthouses and they did. And so they had private enterprise for many, many years. And once again, no one had bothered to look into it, but coasts once again did what your typical Harvard, MIT economist of the day would never think of doing. He got off his butt and went to England and studied the lighthouse business. He was born in England by the way anyway, so he probably went back to visit family and while he was there, he wrote a 60 page article about lighthouses. And I tried to get a grant from some private foundations to write a similar article once and I wasn't successful though. Nobody would give me money for it, probably because they saw through my scheme that I was over, I was in near Rehoboth, Delaware. And I went to one of these restaurants where if you buy dinner before six o'clock, you go on a boat cruise of the Delaware Bay. And so I went on the boat cruise, go on a boat in the captain as a microphone and there's these dilapidated old falling down lighthouses up and down the shore near Louis, Delaware, Rehoboth, Delaware. You can see these old dilapidated lighthouses and the captain's given a little history of the area in all this and some of them were built during World War II, he said, and there was like lookouts for German submarines. But he said, but others, others you can see like the rubble of some really old looking lighthouse remnants. He said they were built by private merchants all up and down the eastern seaboard. Many years ago, merchants from New York who were shipping their goods down the eastern seaboard to the south, they chipped in and they purchased and they bought all these lighthouses because they didn't want their cargo to crash. And so I basically proposed sort of a summer-long beach vacation, going from beach to beach and trying to go maybe spending a half a day at the county courthouse to find some records of the building of these lighthouses. But no one, no foundation would give me the money for my subsidized beach vacation up and down the coast. It's still something that could be done though, it could be a compliment to the coast article. But that's another example of market failure mythology. And maybe the last one I'll mention, market failure mythology has to do with pollution, negative externalities, not positive. And you know the typical story that's in the textbooks has a chart something like this, there's a supply and demand diagram. And it says if you have a marginal external cost, that is the cost embodied in the supply curve or private cost, the cost of production in the typical mainstream textbook. And then the story that is told is that well there's also this marginal external cost in form of pollution. If this is the production of steel, this quantity here, along with the production of steel you might get some air pollution and so the more steel you produce the more air pollution there is. And so the real supply curve might be up here somewhere. And so the efficient quantity is not QE but QE prime. That's been in all the economics textbooks for at least 100 years. The first economist to write it up like this was A.C. Pagu, who was a British economist who wrote a book in 1912 called Wealth and Welfare. And I think that's probably the first place where this sort of analysis popped up. Because urbanization was was growing at that time. And so along with urbanization there was a lot of negative externalities, a lot of pollution, congestion, traffic congestion, horse manure in the streets, people throwing garbage out of third floor windows in New York City. And so economists started studying the economics of pollution back in those days. And so the standard story is that the root cause, the root cause of pollution problems is unregulated free markets because in the pursuit of profit your typical capitalist will only consider the private cost of production and not the external cost of production. And so therefore they will produce too much, too much steel, too many cars, too much manufacturing of all sorts. And because they don't take into consideration these social costs. Well, there are a couple of problems with this. One problem is that, well, that ignores the fact that at least in the Anglo-Saxon world, we've had liability law for many, many centuries. And so what liability law used to do was to say if you harm somebody through pollution, then there's a very high probability that there will be a class action lawsuit against you as if you pollute a river that harms an entire community and you will lose a lawsuit. So you'll be forced to pay. If you harm somebody through pollution, you're going to be forced to pay for it. And so and that will force you to internalize externality, sound liability law. Although in the United States, that that type of law, the common law as an approach to pollution problems was greatly watered down. There's a book about this called The Transformation of American Law and the author is Morton Horwitz. There's no O in that. It's not Horowitz. It's Horwitz. And he's a Harvard law professor. And he writes about how the common law was pretty much close to strict liability with regard to pollution until the mid-to-late 19th century. What that meant was that if you were a polluter and you polluted a stream and people could no longer swim or fish in it and reduce the value of their property because they're living next to a chemical filled stream, then it was pretty certain that that community could sue you. And if they sued you, you're going to lose and you're going to have to pay them compensation. And so as a result, corporations were much more careful about what they were doing. They didn't pollute as much because it's costly, which means it comes out of their pocket. Pollution is costly. It reduces their profits. So in the pursuit of profit, they were being careful about pollution. But this all changed because of a more collectivist mindset in the legal profession. How about that? Who ever heard of such a thing? A collectivist mindset among lawyers. But the collectivist mindset had basically this idea that no one man, certainly or no one small community, should stand in the way of progress for the entire nation. So if you have a steel mill that is producing steel that is used for the armaments industry in World War One and the steel mill pollutes a stream in skunk guts Iowa, surely the citizens of skunk guts welfare should not supersede the welfare of the entire nation. That's the sort of logic that became increasingly used. That's why I call it collectivist logic, as opposed to the logic of individual rights. They have a right to for government to protect their life, liberty and property. And so once that type of thinking took hold, then the common law eventually was transformed. That's the name of this book, The Transformation of American Law is mostly this common law where polluters were let off the hook more and more by the law. And so that's one problem with the standard theory. It ignores liability law and the potential for liability law to solve pollution problems. And by the way, Americans did do a lot to reduce pollution problems of all kinds before the Environmental Protection Agency was created in the early 1970s. It's not as though Americans did nothing. Who wants to live near polluted streams and breathe polluted air? It was the common law that was used primarily in cases like this. But then once the Environmental Protection Agency was created by Nixon, that great benefactor of mankind, then we decided to use central planning as our approach to environmental protection with the kind of results you would expect from central planning. As far as that goes, another problem with this basic theory that has to do with the collapse of communism in the late 80s and early 90s. Now, the basic theory says the fundamental root cause of pollution is unregulated free markets in a pursuit of profit in a capitalist system. That's the root cause of pollution. What would that suggest to you would be the state of the environment in the Soviet Union, Eastern Europe, Central Europe in 1985? Do you have your hand up? No? It suggests that the environment in the communist countries which outlawed the pursuit of profit and private enterprise and capitalism for 40, 50, or 70 years would have been pristine. It would have been clean as a whistle in these countries. Anyway, when communism collapsed, I published a couple of articles. I think one of them was in the Freeman called How Socialism Causes Pollution. It's still online. What happened was with the collapse of communism, I started collecting all these articles from the New York Times and everywhere else. For the first time in 40, 50, or in the case of the Soviet Union, 70 years, outsiders were allowed to go in there and look around without being tailed by the KGB or disappearing into a gulag or something like that. The United Nations went over there and they sent people and all kind of researchers of all kinds. That's how we found Ludwig von Misi's artifacts that were stolen by the Nazis at the beginning of World War II and then taken over by the Russians at the end of World War II and given tender loving care in Moscow until around 1990 when they were found again. We were allowed to go over there. What we found was an environmental nightmare in these places. I'm almost running out of time, but some of the things that I found was in Poland and the industrial parts of Poland, it was routine for fire trucks with water cannons to go through towns several times a day with the giant hoses to knock the lead zinc and cadmium dust out of the air. People with lung disease in Poland were sent to a lung health clinic in underground uranium mines. I think uranium was not a safe thing to be by and be near whether we had lung disease or any disease, but that's where they put them because that was government after all. Your family doctor would not say, oh, I'm afraid you have lung disease, go to a uranium mine. That's my recommendation, but that's what they did. There were the stories like a man drives down to the river and uses river water to wash his car and has lunch and after lunch he goes back to the car and the paint has all peeled off the car. The vulgar river, the ships on the vulgar river had signs on them, steam ships and things going up down the vulgar had signs on them and said, do not throw cigarettes overboard under any circumstances. The river may catch fire because there are so many chemicals in the river. Lake Baikal, the largest freshwater lake in the world, had islands of alkaline sewage a mile wide and three miles long floating around from 70 years of untreated sewage. Imagine you get a day off work and you go out in your little sailboat in Lake Baikal on a nice sunny summer day and you fall asleep and you wake up because the boat bumps up against something and it's a three mile wide big log of sewage and that's what's going on. Some of the freshwater lakes were almost drained in the Soviet Union because for irrigation purposes and the the docks were 25 miles away from the water at some points. I read about the soil in Czechoslovakia was so poisoned from decades of over fertilization that it was it was poisoned down to like a foot deep and nothing would grow and so and so they did bring this in the miraculous capitalist equipment in the soil cleansing the machinery that could extract all these poisons from the from the from the dirt so that they could grow crops there again. There were stories of things like I think it was I think it was the Polish government as I recall because of all the the incessant coal mining they would mine coal underneath buildings and so I remember reading about how a a 15 story tall military sanitarium just collapsed it imploded because they'd been digging for coal underneath it and they created a big sinkhole underneath a 15 story building. One final anecdote is a friend of mine who was from former Yugoslavia where it was a lawyer for the government so he had sort of priority for living quarters and he lived in a building with no elevator on the 30th floor and so I asked him Ivan Pungrasic senior there's a junior his son is a PhD economist but his father and I asked him well why 30th floor are you a mountain climber training for the senior Olympics he said no he said no the pollution is so horrible in Zagreb that it stops at about the 20th floor so you could actually see you could actually open the windows but all my neighbors who are like 20th floor on down you can never open the window because you get all this you know poison that come into your house all day long and you couldn't see anything anyway so so why you know why would you go out on the deck you know on the balcony you couldn't see anything and so so anyway what this all suggests is that that there was more to the cause the root cause of pollution than the externality problem it's the absence of property rights no one no one owned private property in these countries so everybody overused it and and abused it as they would do in this country with the absence of private property rights and I guess my time is up and so thank you for coming and enjoy the rest of the day