 I'd like to welcome everybody to this full day conference on antitrust on behalf of the Center for the Study of Market Processes. I think we have an interesting day ahead of us to debate some hopefully innovative ideas in the whole area of antitrust. I'd like to take this opportunity to particularly thank the Foundation for Advanced Studies and Liberty and the Institute for Humane Studies for providing our center with this opportunity to explore these issues. If you'd like to have more information about these two organizations, we have a representative from them, Greg DeMurs, who's here today and would be glad to answer any questions. There's an organizational note. For one thing, if you have any questions concerning the way the conference is going or where you're supposed to be or anything like that, please don't ask me or Richie because we won't know either. But ask Sharon Gable or Reena Henderson who were behind the desk in front of there in charge of all details and they take care of them quite well. Also our organization has been set up fairly tightly here. We want to make sure we have time available for a question and answer in every session so if we can try to keep to our schedule, it'll make everything go more smoothly and we'll hopefully get out somewhere close to the 5.30 or so time we have in mind to get out. There's one change from the brochure and the printed agenda that were handed out. Unfortunately, James McCarty of the FTC was unable to make it today, but in his place will be another representative of the FTC, Thomas Walton, who's very graciously agreed to fill in at short notice for the missing person. But all FTC people are about the same anyway so it doesn't matter. I'd like to turn the podium over to our dean so that we can begin the session. Professor Don Ackleman, the Dean of College and Arts and Sciences here at George Mason will introduce our first speaker, Don Ackleman. Thank you, Don. Good morning and welcome to George Mason University. Today's conference will bring together market process and public choice ideas to address the issue of antitrust. As many of you know, the Center for the Study of Market Processes has been in active here at George Mason since 1980. And then last summer we were honored to have the Center for the Study of Public Choice join us. Because many market process and public choice ideas are complementary, we are sure to see more conferences like this one in the future. Our keynote speaker today is one of the leading economists in the profession and a founder of the Public Choice Center, James Buchanan. Professor Buchanan is one of the main contributors to public choice economics, or as he prefers to call it, constitutional political economy. He's also among the preeminent scholars who have advanced the approach to economics to which the Center for the Study of Market Processes is dedicated. It is most appropriate then that our first speaker be someone whose work is relevant to both of the perspectives highlighted by this conference. In every discipline, there are a few scholars who are so outstanding and so well known that one does not introduce them, but simply presents them. Professor Buchanan holds such a position of preeminence in his field of economics. And it is therefore with great pleasure that I present him to you this morning, Professor Buchanan. Thank you very much, Dean Neckleman. I'm pleased to welcome you also here and to have the opportunity to present these opening remarks. When Richie Fink first approached me several months ago about giving this opening talk, I told him that I was not at all equipped to talk about antitrust and that that applied whether we approach antitrust from an orthodox, an anti-orthodox, a public choice, or a market process perspective. And I know, looking at the program, that other speakers will indeed present material that will reflect these and possibly other approaches, and that they will do so as genuine research scholars and experts in analysis, theory, policy, and practice. And if I should get up here and try to discuss antitrust with any precision at all, I'd be surely like the blind man in the nudist camp sort of feeling my way around. So I suggested to Dr. Fink that I would maybe talk on the provisional title of Politics as Process, since I had an idea at least about the critique of antitrust legislation and enforcement that stems from the market as process perspective. But in fact, Politics as Process does not really describe properly these opening remarks I want to make, although it will come in. And perhaps if I'm allowed some license here, I might change the provisional title to say something like Antitrust in Constitutional Political Economy. Since as Dean Echelman suggested, that's sort of my favorite term now, Constitutional Political Economy, which does represent my current primary area of inquiry. And I may use this occasion to plug a book that Geoffrey Brennan and I are just now sending off to the press, which we call the Reason of Rules with a Subtitle of Constitutional Political Economy. But my starting point is my title as a noun. My starting point is Politics as Process. And I simply take it here as given or stipulated that ordinary politics, that is majoritarian politics along with modern bureaucracy, or if you will, that which is represented roughly by the legislative and bureaucratic activities of democracy as observed in the United States. In other words, I take it as stipulated that this will more or less perform as we might predict from elementary public choice analytics. That is to say, we can come pretty close to predicting patterns of outcomes of the great game of politics. Once we look at the rules or constraints within which ordinary politicians and bureaucrats operate, these players in the game will act strategically so to maximize their own utilities. And within these rules we can say something about the patterns of outcomes that will emerge. And as several other speakers today will indicate, both historically and currently, much of the antitrust activity we have observed can be explained by a rather simple modeling of play within the game itself. And of course it can be made operational once we put specific arguments into the utility function of the players. Now constitutional political economy commences with this in-game political behavior as stipulated. And it focuses our attention immediately and directly on the rules, on the rules themselves. If we do not like the patterns of the outcomes that we observed or have observed, then it will do little good in any permanent sense to merely change the players, whether these be individual agents in administrative roles or whether they be politicians who are elected or whether there be political parties as dominant legislative coalitions. Improvement must come by changing the rules, by modifying the Constitution, defining that term inclusively. That's something I learned from the great Swedish economist Gutvich Sel many years ago. We must look to the rules within which politics and politicians are allowed to operate. Okay, so far so good, but what has all this got to do with antitrust? I want to pose for you at the outset today the very specific question. In the laws and institutions, to use Adam Smith's terminology, in the laws and institutions that are necessary to provide the basic framework within which a market or enterprise economy can operate, is there a role for the enforcement of competition as a specific component? Or we might use Hayek's terminology, as he suggested in the road to serfdom, must planning for competition be a part of a true policy package for a free society. Let me stay with Adam Smith, however, and look at the necessary framework of laws and institutions, which are required if we expect a market economy to emerge and to flourish. Now, I personally think that we can dismiss at the outset the absurdities of the anarcho-capitalist who argue that somehow we do not need so much as minimal protection of life and property, that markets will emerge to take care of everything. I don't think that these arguments are really worthy of serious intellectual attention. This leaves us then with the question, within the protective state, as I have called it, or the night watchman state, as some of the 19th century philosophers called it, or the minimal state, as Bob Nozick has called it, within this state or this legal order, what are the requisite rules for the enforcement of competition? Now we know, of course, the general attributes of the rules that define the minimal state. Property rights must be assigned and protected, and voluntary contracts must be enforced. But is anything beyond this required? Is there a legitimate basis for framework rules or framework laws that will enforce competition? Now, my own position methodologically is well known. I simply know of no other means of deriving, in a conceptual sense, what this set of rules should be than that position, which is broadly called the contractarian position. In other words, can we imagine ourselves in a setting where we are thinking about drawing up an initial set of rules under which we're going to operate, when we do not and cannot really know how the workings of the process will be described in detail and certainly can't know anything about our own position in the process? In other words, we think of ourselves as planning, discussing, and reasoning about the rules of the political economic game. And we can, at best, have very vague ideas about patterns of outcomes that will emerge from the market and political process. We cannot know just what outcomes will, in fact, emerge, or what direction various economizing efforts will take. So the question, then, is how we choose or what we agree on in that initial position behind some veil of ignorance or uncertainty. Whether you model this in the strict Rawlsian normative stance of the veil of ignorance, or as Gordon Tulloch and I modeled it in terms of the uncertainty veil of constitutional choice. As I tried to show in my book The Limits of Liberty, which I published about eight years ago, it's relatively easy to derive a logical justification for the assignment of rights to person and property in this manner. It's to everyone's interest that his person and property be protected and that laws be enforced. Now, that single step alone will ensure us that trades and exchanges can indeed take place, that mutual gains from trade can be maximally exploited, but is more needed here. Now, this is surely an open and discussable question, and one for which there is no clear cut or obvious answer. Our thinking about it is confused, I think, by the mixture of law as an evolved order, and the common law being the example, and laws that might be specifically constructed or laid down through legislation. The question as to whether and to what extent the law of property and contract was actually constructed or whether it has mostly evolved is an important question, and it confuses the issue, but is really not germane to my direct inquiry here. But I do think the confusion between these two avenues of derivation of positive law does make the argument difficult for us to sort out in some places. So let me put the whole question in a slightly different way. What is required to ensure that Adam Smith's simple system of natural liberty will operate? Since it seemed to me that this is a system we should want to see developed within the set of rules that we should choose. As I've suggested earlier, it's relatively easy to derive rules that would protect and enforce property rights and contracts in that setting of analysis. But then the question is what is the range over which contracts are allowed to settle down? Is the legal umbrella of the minimal state to be extended to include all possible voluntary contracts? I think there are relatively few who would say yes to this question if they think seriously about it. Now, of course, we hear a lot in conferences like this one particularly about monopolies that persevere only under the legal protection of the state. Even Adam Smith said this much, and there is surely a great deal of merit in that argument. Without legal protection, monopolies might not persist very long. But let us look a little more carefully at this common view and its relation to the enforcement of voluntary contract. Suppose there are two farmers who live side by side in a valley that is unique in its ability to grow a rare sort of fruit. And this fruit grows nowhere else. These two farmers now make a wholly voluntary contract to restrict production and fix price. They form a cartel, in other words. This is a voluntary contract. Now, the question is, should the legal arm of the protective or minimal state act so as to enforce that sort of cartel or price fixing agreement? We may say, of course not. But if we accept that position, we are saying in effect that the range over which voluntary contracts may be made enforceable is restricted. We have already moved well beyond the mere role of enforcing contract and protecting property. If we make such a step, however, we are already involved in antitrust activity, whether or not we want to call it such. We must somehow make a distinction between that set of voluntary contracts that are subject to enforcement by the state and that set which is to be exempted from enforcement. And we cannot get away by saying that the common law or some equivalent would make better distinctions than the constructive operation and decisions of lawmakers and bureaucrats. Perhaps that claim might be granted. But that claim is limited to the means through which competitive institutions should be guaranteed. And as such, it's not at all related to the larger argument as to whether or not the state should be involved in enforcing competition at all. Now, I realize that there are those among the participants in this conference who think they have a way out of my dilemma. They would say that indeed the state should enforce price-fixing, output-restricting contracts among my two farmers, so long as this is a genuinely voluntary transaction. Those who hold this position would be satisfied, so they might say, with any voluntary contract, along with state enforcement, provided the state itself does not initiate cartel agreements. But what about my two farmers? The argument here would be that so long as entry is free, we need not worry very much about voluntary contracts to monopolize or cartelize. Now, such a position is, it seems to me, defensible only on empirical grounds. To be supported, we would need to show that there are very few highly specialized resources, including locational resources, and that there are very high elastisties of substitution among almost all product lines, both final consumption items and productive inputs. The strength of the argument here, even given a set of empirical facts, would depend also on the speed of adjustment along with the discount rate that is used. There might well be very high elastisties of substitution among all resource inputs and among all final consumption items if you have a long enough time perspective. But short-term elastisties may allow for considerable damage to be done by the monopolizing, cartelizing proclivities of ordinary people. And if the discount rate is high enough, there may be an argument for trying to do something about these proclivities through legal political means. Now, my own prescriptions are perhaps clear from what I have said here. I think that there can be a case made out for having anti-monopoly rules as a part of the overall framework of the laws and institutions of a free society, one within which markets can emerge and function. But note what I have said. I said that the argument is that we have anti-monopoly or pro-competitive rules, by which I mean that somehow or another, we have constitutional legal restrictions on the ability of persons and groups to secure and maintain privileged positions in markets. Now, having said this, I realize I have said relatively little about the important next step. What would these rules look like, and how should they be enforced? How would we establish genuine constitutional legal rules that would be immune to the ordinary excesses of politics as process as we can observe it? Now, this is the challenge. The challenge remains, and surely I offer to a group like this no fresh answers. But let me end these opening remarks by suggesting that we make relatively little advance here by remaining totally negativistic. Antitrust enforcement, as we observe it, may indeed be corrupt, misguided, inefficient. But let us not seem to be and be seen to be offering support carte blanche to those who would allow the monopolist to take over the world. Thank you.