 In my lecture on Monday on the role of the entrepreneur, we discussed how entrepreneurship, this act of bringing goods and services into existence by combining and recombining resources under uncertainty, you know, is central to the entire market process, to the market system. As Mises pointed out, it would be impossible to imagine a market economy without entrepreneurs engaged in this critical function. So you would think that, you know, not only when doing economic analysis, but also socially and culturally, entrepreneurs would be the heroes in our society, right? And it is true, as I pointed out on Monday, that, you know, if you define entrepreneur narrowly to mean, you know, founders of tech companies and so forth, yeah, I mean, people like Bill Gates and Mark Zuckerberg and so forth are very sort of prominent figures and probably lots of kids want to grow up to be the next Steve Jobs or Bill Gates, which of course is much better than wanting to grow up to be president, which is what they said when I was a kid. Nonetheless, you know, business people in general are not exactly louded in all quarters of our society. I mean, it's pretty common place to observe that for example, in popular culture, in movies and fiction and so forth. You know, the typical villain is always some kind of a business person, some kind of a bad business person, right? You could go back to the Mr. Potter character and it's a wonderful life to Snavely Whiplash and cartoons and one of the James Bond films that had sort of a media magnate as its villain. But you know, when Hollywood is looking for a stock character to do something really horrible, if you had to guess what profession that villain will, you know, what will be that villain's profession, you're most likely to get it right if you select businessman or business person, okay? And of course, this is hardly new, I mean, going back a century or more ever since the rise of kind of large industrial enterprises in the late 19th century, you know, the business person has been portrayed as this sort of blood-sucking leech, right? That's a John D. Rockefeller caricature from 100 years ago, right? Sucking the life out of society and so forth. Now, I mean, it's a little bit more difficult to persuade people in your generation, you know, that big business people are evil and big companies are evil because what do you deal with most of the time in your lives, big companies, but not ones you hate. You know, Amazon, everybody loves Amazon whether you read books on Kindle or you order all your stuff from, you buy all your stuff on Amazon or you watch Amazon Prime or whatever. I mean, can you imagine life without Google? I mean, what would your life be if Google ceased to exist? It's really hard to imagine. And of course, if you look globally, you have huge companies like Alibaba, right? Of course, Alibaba is responsible for a lot more of global commerce than the US-based tech company. So it's harder to get people nowadays to hate big business if they think big business is this, right? These are good guys. So, you know, how should we analyze from an economic point of view and sort of think about from a policy and normative point of view of the role that big business plays in our society? So let me sort of outline what a free market approach to thinking about big business and the role of government in promoting and constraining big business. Let me suggest what that would look like. I mean, obviously for this audience, I don't need to remind you that if you just look back in history, right? Forget about Google and Amazon. I mean, big business is probably responsible more than any other entity for the phenomenal increase in living standards that human beings have experienced over the past, you know, 150 years. You know, everybody hated Standard Oil, John D. Rockefeller, and certainly as we'll see, there's a lot of cronyism involved with some of those 19th-centrally industrialists. But of course, the main sort of result of John D. Rockefeller's development of the petroleum industry is that we went, you know, from a world in which basically when the sun went down, everybody went to bed, right? To the modern world we have with, you know, with indoor lighting and so forth, right? Just the tremendous gains, tremendous reduction in poverty from 200 years ago to today. It's unimaginable that that could have happened without capitalism, including large industrial enterprise. You know, just think how much worse our lives would be and would be the lives of people around the world without large retailers like Walmart and so forth. You know, everybody outside of our circles loves to hate companies like Walmart, it's driving the mom and pops out of business, doesn't pay its workers a living wage, et cetera. But remember, Walmart does not cater to the Elizabeth Warrens of the world. Walmart caters to low-income people, both as those who consume Walmart's products, but also as those who are employed at Walmart, right? Walmart pays better wages in the small rural communities in which it often operates than those of other companies, you know, as in a similar way to what Ben Powell was discussing yesterday on sweatshops. And, you know, again, Google, Google's a highly profitable company. Google's founders have done quite well financially, but I mean, all around the world, not just in English-speaking countries, right? It's hard to imagine life without Google. So, first thing I would say is, you know, if we're trying to assess the role of big business or sort of the place of big business, how should we think about big, big, big business? You know, the wrong question is, well, how big is it? Right, if it's really big, it must be really harmful and if it's only a little bit big, it's only a little bit harmful and so forth, right? So, size per se or profitability per se or growth per se is probably the wrong question in assessing a company and the role of a company. I mean, obviously, a lot of companies today are huge, right? Amazon had $68 billion of sales in, this is from 2013. In 2017, the number was $178 billion, all right? So, Amazon is a huge company, makes up a huge portion of the retail market and, of course, is the world's largest retailer by conventional metrics. Some firms have grown rapidly. You might have seen this kind of thing before. You know, we talked about sort of in the modern era and the internet era, firms can grow faster more quickly than they did before. Firms grow more quickly than they used to. You know, it took 68 years for the commercial airline industry to have 50 million users and it took 22 years for the television industry to have 50 million users and, you know, only four years for YouTube and two years for Twitter. Of course, you know what's the fastest of all? Pokemon Go, right? Took 19 days for Pokemon Go to get a 50 million user. So, look, a lot of firms grow very fast but we wouldn't conclude anything about benefit or harm to society merely by looking at growth. You know, as I discussed a little bit in my talk on Tuesday which some of you attended on competition and monopoly, you know, how many firms are in the market is also probably the wrong question. A lot of technology markets are highly concentrated, right? So, Google has a very large share of the mobile search market but very few users of mobile search would claim that, would believe that they are harmed by that market share. You know, look at video streaming, right? You have a small number of pretty large players, right? Netflix is being the dominant player but Amazon Prime and Hulu are on the rise and YouTube subscription based YouTube and so forth. So, you know, those markets are much more concentrated than the stylized perfectly competitive industry of economics textbooks. But again, few of us would claim that, well, Netflix has really harmed the television and movie industry. I mean, I think the Emmy awards that were just a couple of weeks ago, right? For the first time ever, Netflix produced television shows, won more Emmys than those of any other studio. I think it's typically been HBO that's had the most, has won more Emmys than other studios. So, Netflix of course, aside from being a streaming service, Netflix has reinvested much of its earnings from streaming into now being a production studio and producing lots of high quality stuff. I mean, seriously, how much stuff do you watch that's a Netflix original compared to what is produced by ABC or something? That's mostly garbage, right? What we should be asking if we wanna think about the effect of large enterprise on well-being, we wanna understand the nature of large enterprise in society, better question is sort of, you know, how did big business X get big? Right, did it get big by pleasing its customers like Google or Netflix? Or did it get big because it has some kind of special privilege, some kind of monopoly protection or other benefit from the state, okay? So it's kind of a, there's sort of a good cop, bad cop or yin and yang or I don't know what the right metaphor is. But you know, there are kind of good big businesses from that perspective and not so good big businesses, right? So bigness per se doesn't tell us much. The question is, why are large companies large? How did they get large? Now, within the libertarian movement, you know, there's been a variety of views on this type of question. At one end of the spectrum are writers like Ein Rand who wrote a famous essay in the 1960s called America's Persecuted Minority, Big Business. Deliberately provocative title as was her want, right? But Rand was very much reacting against this view that I depicted at the beginning, the way big businesses portrayed in popular culture and Rand said, no look, in fact, if you compare the amount of good done by big business in society with the way big businesses portrayed and assessed by the average person, it's, you know, there's a bigger imbalance there than sort of in any other, with any other type of person or whatever, that really big businesses is driving the economy forward, bringing us tremendous gains and yet big business people are hated, they're reviled, they're ridiculed and so forth. So I think, I certainly understand the point that she's trying to make, but other libertarians have focused more on cronyism or the benefits that some big businesses have gotten from a cozy relationship with regulators and other officials. So starting in the 1960s, you had a different libertarian tradition. Murray Rothbard was very influenced by the left-wing historian Gabriel Kolko, whose most famous book was on the railroad industry, Railroads and Regulation, but he has a very famous follow-up to called The Triumph of Conservatism, which deals with some additional, applies to the thesis to other industries. Kolko's argument was the way that railroads got big in the 19th century was by, mainly through subsidies, through subsidies and special privilege from state, local and the national government. If you've listened to any of Tom DeLorenzo's lectures on Lincoln, he often points out that Lincoln, before becoming president, was a railroad lawyer and lobbyist whose primary activity was to get, basically to expropriate land from private owners and give it to the railroads so that they could build railroad lines more cheaply. Rothbard collaborated with a left-wing historian named Ronald Radosh. He was a left-winger at the time and he became sort of a neoconservative on a book called The New History of Leviathan, which applies this kind of framework to assessing various businesses during the sort of gilded age in early 20th century and showing that in many cases, they did in fact receive, they grew through special privilege rather than through merit. The book on the Progressive Era that was released just earlier this year, this, as you know, I think Patrick Newman talked about this, right? Patrick edited this book based on an unpublished manuscript that was discovered in the Rothbard archives, but it very much takes this perspective that especially during the Progressive Era, when on the surface, the state was reining in big business, what the state was really doing was helping to consolidate and enable certain firms to do better than others, not because they were satisfying their customers, but because they had a cozy relationship with the state. In an unpublished letter written by Rothbard to a friend in the mid 1960s, he said the following. He said, for some time I've come to the conclusion that the grave deficiency in the current output and thinking of libertarians and classical liberals is an enormous blind spot when it comes to big business. While big business would indeed merit praise if they won that bigness on the purely free market, in the contemporary world, this is the mid 1960s, of total neo-mercantilism and what is essentially a neo-fascist corporate state, bigness is a priori highly suspect because big business most likely got that way through an intricate and decisive network of subsidies, privileges, and direct and indirect grants of monopoly protection. No, this is not a praxeological statement, right? This is a kind of, this is a historical assessment. So Rothbard's view in the mid-60s, and this is during this period when he was collaborating with these so-called new left historians, he said, look, you know, he said, the libertarians I see around me, most of whom were devotees of Ein Rand and followed and were influenced by Rand's view on big business. Rothbard says that they really are failing to see how in the real world, most businesses in our society did not become big through satisfying customers but through special privileges. In other words, Rothbard was concerned at that time about what we now would call crony capitalism, right? We all know that there is no country in the world in 2018 that has a purely free market economy. It can be confusing, especially to the late person because the US economy is often described as, you know, a free enterprise economy. Well, of course we have free enterprise in the US. I mean, you've got to define your terms, right? If that means we don't have explicit socialism in the US, I mean, that's true. We don't have state ownership of all the means of production. We have a nominally market economy. Ribut Mises would call it, we would describe it as a mixed economy or maybe a neo-mercantilist economy as one adequate description. You know, it's not at the extreme of Germany in the 1930s as Tom Woods was explaining to us yesterday, but certainly we're far from a free market. But the fact that we use terms like free enterprise or capitalistic or popular pejorative term nowadays is neoliberal. So critics of the market say that, well, the US is, the US and Western Europe follow this neoliberal model, which by which they, it's not clear if they mean, if they think that means free market or they think that means kind of mercantilism or cronyism, it's not sure, but there's a lot of awareness nowadays of issues with so-called crony capitalism. You know, the mainstream media are talking about it. The great book we have in the bookstore by Hunter Lewis called Crony Capitalism in America. There's a, I don't know if you were watching the movie last night, but it was Gene Epstein who used the term capitalism to discuss crony capitalism. I don't know this book by Jason Matera, except that it has a title of Capitalism so it's probably worth checking out. One of Tom Di Lorenzo's old friends, Jim Bennett, recently, I think this last year published a book on corporate welfare, called Corporate Welfare that's about cronyism. So obviously there's increasing awareness and concern with this sort of phenomenon. So what exactly is cronyism, right? What are some ways that government helps big business which would give rise, you know, legitimize the kinds of concerns that people like Rothbard had in the 1960s. So in fact, there are lots of subsidies, direct subsidies and indirect subsidies that are given to politically connected firms by the state. Right, so, you know, there are direct subsidies. Goldman Sachs and other large investment banks function as so-called primary dealers in New York City. I'm not sure if other professors in talking about Austrian business cycle theory went over this point, when we talk about, we say, well, the Fed buys and sells securities through open market operations. Fed wants to increase the money supply, right? They, or decrease the money supply, they buy and sell treasury bonds. Well, you and I can't go and buy those treasury bonds from the Fed. Okay, there's a small number of New York investment banks, the so-called primary dealers. They're the ones who actually buy and sell directly with the Fed. Then eventually, then they can trade with the riffraff, people like you and me, right? But, you know, we talk about cantillon effects. Who gets the money first? Well, it's Goldman Sachs and the other big investment banks, the primary dealers. They get the new money first, like, you know, that exact moment, right? So, I mean, then you add the fact that, you know, what is it in the last 25, 30 years, you know, almost every US Treasury secretary has been a former Goldman Sachs executive or went on to be a Goldman Sachs executive and so forth. So, some people consider Goldman Sachs like a fourth branch of the US federal government. We've already done a fair amount of Elon Musk bashing this week, so I don't need to add on to that, but certainly Elon Musk is happy to take whatever kind of electricity subsidies, alternative fuel subsidies, and whatever other kinds of subsidies he can get his hand on. But, you know, there are also, you know, indirect subsidies, cases where it's a little bit less obvious, like the US Export-Import Bank, right? Which is allegedly, ostensibly, a US government agency that promotes trade. Okay, well, that sounds good. I think it's great for the US to have more trade with, you know, countries around the world. But of course, what in fact this means is the Ex-Im Bank gives taxpayers subsidized loans to governments and companies in other countries, you know, for one purpose, namely to buy American-made products. And not just any American-made products, but Boeing jets or caterpillar construction machines or GE engines and so forth. So the Export-Import Bank is basically just a subsidy machine for these large US companies that are on the list of preferred US firms. Right, I mean, you understand this is how foreign aid works. You say, oh, aren't you in favor of, you know, helping the people in, you know, developing country X? And it sounds like US foreign aid to a developing country is, you know, you see these pictures of the Marines giving out sacks of wheat and all this. And you think, oh, of course I wanna help those people. No, I mean, most of US foreign aid is taxpayer money going to the dictator of that country so he can buy some 747s for the state airline. Okay, so clearly these kinds of firms are major beneficiaries of the US taxpayer. And, you know, these firms don't get as much blame as they should for being cronies. And of course they're extremely well connected. There was a famous influential US senator in the 1970s named Scoop Jackson from the state of Washington. He's known, kind of infamous among foreign policy experts because most of the, a lot of the really terrible neoconservatives like John Bolton and Richard Pearl, these guys were his kind of staffers in the 1970s. But he was colloquially known in Washington as the senator from Boeing. Now there are a lot of sort of indirect, there are a lot of government actions that provide indirect subsidies to certain firms, politically corrected firms, named often through the form of what we call raising rival's costs, it's a bit of a tongue twister. Government action often protects incumbent firms, protects large successful firms by making it more costly for newer or younger firms to enter the market and compete with them. So, you know, think about tariffs and quotas. If Trump is successful, you know, I just think just this morning he announced a new set of proposed tariffs on Chinese exports to the US, right? So, if you're a domestic American steel producer and the federal government puts a 50% tariff on imported steel from China or from India or whatever, that obviously gives a benefit to incumbent steel producers, right? It makes it harder for a new steel producer to come into the market, quotas on imports and so forth. But also in a less obvious way, a lot of health, safety and environmental rules also form, they function as a kind of protection for incumbents. So, you notice that, you know, in the United States over the last 20 years, almost all private organizations by law, organizations by law are required to meet certain requirements, for example, access for people with disabilities. So, you see a certain number of parking spaces reserved for those with a handicap tag. You have ramps and elevators and so forth. And a lot of this was from a piece of legislation passed during the 1990s, during the administration of George H.W. Bush, called the Americans with Disabilities Act. And this mandated that public and private establishments make their facilities accessible to people with physical disabilities. Okay, well, I mean, who could argue with that, right? If you look at the sort of congressional record and you look at lobbying expenditures, it turns out that as you would expect, lobbying groups that represent small enterprise lobbied against making these requirements mandatory. They said, well, look, if we can do that, we certainly want to do that for our customers. We want to have as many customers as we can. We want to be able to have the best employees that we can. So, yeah, we want to make all our facilities accessible, but it's very expensive to do that, right? And some of us can't afford it. And if you require us to meet these particular restrictions, we're not gonna be able to open, we're not gonna be able to stay in business. So, these kinds of requirements, just like environmental quality requirements or safety requirements, make it more costly for business to operate. So, no company wants higher costs, right? So naturally you would expect all businesses to be, to have been lobbying heavily against the Americans with Disabilities Act. Guess what? Lobby groups representing the largest companies in America all lobbied very heavily in favor of the Americans with Disabilities Act. They were begging the government to do something to increase their costs. You said, well, that doesn't make any sense. Doesn't that hurt their profits? Yeah, I mean, in the short run, but in the long run what it does is it protects their position because Wal-Mart can easily afford to design the parking lot in a certain way to make sure there are no steps as you enter the store. That's easy for Wal-Mart to do. And of course, Wal-Mart has, Wal-Mart Corporation has hundreds, maybe thousands of attorneys and compliance officers and all sorts of folks who specialize in understanding the regulations and making sure the firm is in compliance with the regulations. Mom and pop stores don't have that. Mom and pop entrepreneurs, they can't afford to build a ramp instead of stairs. They can't afford to repave their parking lot. They don't have a lawyer or retainer who can help them decipher the latest requirement of the Americans with Disabilities Act. So large companies, surprisingly, or at first glance it's surprising, often lobby for more regulation, for stricter government requirements on disclosure and so forth because they know they can afford it and their smaller newer rivals cannot afford it. The economist Bruce Benson famously articulated this point with his great metaphor of the bootlegger and Baptist coalition. So I don't know if you've read Bruce Yandle's writings on bootlegger and Baptist coalitions. Yandle points out that these kind of regulations that raise rivals costs are much more likely to be enacted. Big companies are much more likely to get these kinds of benefits when they can sort of hide behind some more benevolent sounding interest. His metaphor with bootleggers and Baptists, he's talking about the prohibition era in the 1920s. Yandle says, look, there were two groups who were in favor of alcohol prohibition in the 1920s. One group that you could call Baptist, quote unquote, he doesn't mean literal members of the Baptist faith, but he means people who believed, said that alcohol should be illegal because it's immoral and unhealthy and it's bad for people, it's bad for society. And indeed prohibition was publicly championed by different so-called temperance groups that argued that public and private drunkenness was a serious health concern and people were not showing up for work and men in particular were not being good husbands and fathers because they were drunk all the time and so if we ban alcohol, that will lead to a more virtuous and more prosperous and better society. Of course, there was another group that was in favor of alcohol prohibition, right? Namely those who make a lot of money from selling illegal booze, right? The Alcapones and so forth, they love prohibition. That's what enabled them to grow their empires, right? Just as nowadays, what sorts of groups most strongly oppose drug legalization? Well, there are groups who say, oh, well, marijuana is harmful, we were talking about medical marijuana last night. There are people who say marijuana is harmful, it's a gateway drug, it has all these negative effects on society, but of course the drug cartels are terrified at the idea of ending drug prohibition, right, because that would put a huge dent in their profits. But of course, Al Capone couldn't go on television or radio as it was in the 1920s and say, okay, everybody, we really need to keep prohibition in place because I'm making a blank load of money off of it, and if you ever repeal prohibition, that's gonna be bad for me. He can't say that, he can't do that publicly, but he doesn't have to if he can hide behind some other group, which is making the argument on his behalf but for different reasons, right? So the claim is not that these two groups are sort of explicitly working together, but that they're both sort of lobbying for the same thing, the so-called Baptist group is lobbying publicly, publicly advocating some policy. The so-called bootleger group is working behind the scenes to get the same policy enacted. You see this today with a lot of environmental legislation. So you have the Sierra Club and Greenpeace and so on talking about greenhouse gases and climate change and the need for electric cars and so forth, but then you also have Elon Musk, working behind the scenes to get stricter regulations on fossil fuels. You have incumbent producers who are trying to get factories who want tight emissions requirements on new construction and so forth. So when you have a bootleger and Baptist coalition, you're more likely to see regulation that is sold to the public as something that benefits society at large, but is really benefiting certain special interests. So am I concluding that the sort of new left historians of the 1960s, sort of the Rothbard of the 1960s had it right that in our society today in 2018, most large businesses should be regarded with some suspicion because they probably got big from special government privilege. Well, not so fast, right? Government also does a lot of things to help small firms, right? There's a lot of government policies that subsidize small firms and penalize large firms. Antitrust is an obvious example. Small firms are generally not subject to antitrust scrutiny because no one's paying any attention, no one notices. You might have heard that just this week, Google got hit with a huge fine, I think it was a $5 billion fine from the European Union Competition Authority for allegedly, it's very similar to the case that was made against Microsoft in the 1990s. The claim is that anybody who buys an Android handset, a mobile phone with Android, is sort of forced to use Google services, Google Chrome and Gmail and so forth, and that doesn't give providers of rival browsers, Firefox or, I don't know if they make Microsoft Edge for mobile or whatever the other browsers operate, you might be interested in, that those companies are hurt because Google is sort of pre-installing various Google services on its devices and that's an unfair exploitation of Google's market power in the handheld market. I mean, we talked a little bit on Tuesday about why those are not very good arguments but the point is, if you're a teeny tiny little mobile phone operator or you make an operating system for mobile and you have a half percent of the market, you could probably do whatever you want and the antitrust competition authorities are not gonna care, right? Small firms can do lots of these things without drawing any, they sort of fly under the radar screen, so to speak but once you reach a certain size, then the government starts paying attention and it's a well-known in the history of Silicon Valley that until about the mid-1990s, U.S. technology companies were pretty apolitical. They didn't make, they didn't contribute to politicians' campaigns, they didn't do much lobbying and really, politicians didn't know much about them. Politicians didn't understand the internet when it first came into existence. Who was the guy who talked about, it's a network of tubes or whatever. Some old congressperson had no idea what the internet even was but as the commercial internet grew and became what it is today. Now, of course, government officials see Silicon Valley is a gigantic cash cow waiting to be milked. That actually leads me to another example or the example of what Fred McChesney, a very good economist who died last year called Rent Extraction. McChesney wrote a book called Money for Nothing on this phenomenon and what he meant by Rent Extraction was the phenomenon of regulators, elected officials, bureaucrats and so forth. Taking certain actions against successful companies as a way of signaling, hey, you are on our radar screen. We are paying attention to you. Boy, wouldn't it be terrible if something bad happened to your business or your industry like we shut it down? By the way, my PayPal address is whatever. I'll be running for office next year and certainly would appreciate your support. If you remember during the 2016 presidential campaign, there was a lot of criticism of Hillary Clinton, how much money she made before she started running for president when she sat down for the Senate. Speaking fees, Hillary Clinton was making billions, giving talks to Citibank and Goldman Sachs and so forth, so Bernie Sanders and his supporters really hit her hard during the primaries and even Trump talked about Clinton being in the pocket of Wall Street and so forth. Bill Clinton makes tens of millions of dollars every year in speaking fees. And I remember at that time thinking, okay, I've seen Hillary Clinton give a speech on TV. I've never had the privilege of seeing it in person but they're not that good. She's no Andrew Napolitano as an engaging storyteller and she's got a clunky and she's got this flat monotone voice and if she tries to tell a joke or laugh, you can tell that she's a robot, right? Why is Citibank paying her $500,000 for a 20 minute speech or a 30 minute speech? What knowledge could they possibly extract about the financial sector from this? Eventually I realized, no, it's a form of, these are kind of, it's kind of protection money, right? So these large politically connected firms were thinking, okay, Mrs. Clinton, Senator Clinton is very likely to be president in the future. Bill Clinton is very likely to be not only an ex-president but a first gentleman or the first gentleman or whatever. These are people who are gonna be in position to help us a lot or hurt us a lot. Let's make sure that they are in our pocket. Let's make sure they are friendly to us. So yeah, we pay them an amount that's way above their discounted marginal revenue product to come and give a talk to our executives. It's a kind of extortion racket. That's the way that McChesney describes it and I think that's a useful metaphor for understanding it. I was looking recently at some data on Silicon Valley as I mentioned before. After the Microsoft Antitrust case in the mid-90s, Microsoft and other tech firms suddenly started making very large campaign contributions to elected officials nationwide. Gee, I wonder why, okay? Another interesting factoid is if you look at campaign contributions by party made by U.S. companies, and I imagine this is true in other countries as well, large U.S. companies give almost equally to Democratic and Republican candidates. Even in the same race, they give the maximum amount to this person running for Senate and they give the same amount to the opponent running for Senate, for the same Senate seat. You think, well, it can't be ideology, like we favor these policies, we wanna make sure the person who also favors those policies gets elected because then why are they given to the other candidate? Well, it looks like protection money, right? Whoever wins, the winner is somebody who appreciates what we have done for them in the past. Okay. Another set of policies that help small firms is disclosure requirements. So after the financial crisis, the Sarbanes-Oxley, sorry, after the corporate scandals of the early 2000s with Enron and WorldCom and other companies that were discovered to have misreported their earnings, there was a series of reforms designed to impose stricter reporting requirements on publicly traded firms. So now it's the case that CEOs and CFOs can be held personally liable for misstatements, deliberate misstatements or fraudulent information that's on their public disclosures, their 10K and their annual report and so forth. And again, these were reforms that were passed in the wake of these corporate reporting scandals. Well, one of the predictable effects of the Sarbanes-Oxley Act and one that we can now see in the data is that far fewer firms are going public, having an IPO and being listed on the stock exchange. If you're a privately held company, you don't have to meet these disclosure requirements. But if you wanna trade on the New York Stock Exchange or you want your stock to trade on the NASDAQ, then you have to disclose all this information to the Securities and Exchange Commission. But if access to public capital markets, if access to equity from the stock market is a requirement or a useful ingredient for growth, but becoming publicly listed means you have to disclose all this information to the government and you could be personally liable for any mistakes, that simply increases the cost of getting big, right? So many more companies will choose to say small than they otherwise would so they can avoid having to meet these kind of disclosure requirements. And we talk about Elon Musk. Well, I mean, I guess Elon Musk is a big business person now. I mean, Tesla is a large company by market value and so SpaceX is other enterprises are large, although if you look at sales revenue, they're of course very small. But Elon Musk started out as a much smaller, his venture started out small. And of course, there are lots of subsidized programs for small ventures, especially in the technology sector. So many countries, including the United States, have a government agency responsible for doing small business lending. So the US Small Business Administration gives taxpayers subsidized loans to startup companies, to smaller companies, companies meeting certain requirements. There are all kinds of development grants for entrepreneurs, taxpayers subsidize business incubators and accelerators and other organizations that are designed to help certain kinds of companies. And if you think about it, interventionism per se, right, makes the market economy work less well than it otherwise would, right? So you can look at a whole host of government interventions that kind of retard the division of labor, impose barriers on trade and so forth, it's having us kind of an aggregate net harm on entrepreneurs and entrepreneurship, right? So trade barriers, war, state control of education and so forth all make firms less productive than they otherwise would be, right? And if you assume that entrepreneurs established enterprises and those entrepreneurs were skilled over time, will develop more expertise, they'll be able to accumulate more capital, they'll be able to hire the best workers and so forth, well in the mixed economy that process doesn't work as well because our economy is way below potential because of all the features of what means is called the hampered market economy. So just the mixed economy per se imposes a kind of indirect tax or cost on productivity which hurts large companies that through economies of scale and learning by doing might otherwise be a lot larger than they currently are, okay? Let me just make a few brief remarks before we wrap up about the corporate form specifically, right? So I've just been talking about large companies and with a few exceptions like Sarbanes-Oxley, not specifically about corporations versus non-corporations but that tends to be a big issue in many libertarian circles. There's sort of a view that you see in some of the free market literature that yeah, maybe it's fine for companies to be big but the corporation per se is kind of suspect because corporations are established by law and when you are established as a corporation you get limited liability for certain kinds of harms that are done by the firm and it is held by some people that this is kind of itself an artificial state privilege that limited liability is a grant from the state and that corporations per se get a kind of state benefit from being incorporated and being held to limited liability. Roderick Long and I, I can't believe it's been 10 years ago now, had a little online back and forth on this where Roderick was arguing that large firms and corporations in particular get a bunch of state benefits and I was arguing that they don't. Roderick's point was that in a truly free market we really wouldn't have any big companies. We'd have sort of mom and pops and worker owned cooperatives and all kinds of other kind of village enterprise and so forth and I was challenging Roderick on that point, you can Google this and find it but just to summarize a couple of the points that I made there, I mean, certainly it's true that the corporate form of organization does provide certain kinds of organizational benefits otherwise why would anybody do it, right? So there's certainly some tax benefits to incorporating, right? If the corporate tax rate is lower than the personal tax rate that you might pay if your enterprise were organized in a different way then it makes sense for you to incorporate and I'm certainly in favor of individuals and firms paying lower taxes. What about limited liability? So I think it's important to distinguish here among two different types of limited liability. So limited liability can apply either to relationships between the firm and its creditors or relationships between the firms and individuals who might be harmed by the firm through some kind of a tort. So the creditor issue is easy to solve, right? If by limited liability we mean that I have a venture I incorporate as a limited liability company. If my firm goes bankrupt, then the assets will be partitioned off and sold to the bank or debt holders or other people who have lent me money. So limited liability means that my creditors can seize all the assets of the venture if the venture fails and I don't make my debt payments but they can't come after my house. They can't get my car, my personal, my college savings account or whatever. They can only retrieve, they can only recover the assets of the firm not my personal assets. Well, is that good or bad? Well, I mean, from a market-oriented point of view, who knows? I mean, that's something that the market would have to sort out on its own. In other words, in a purely free economy, my conjecture is entrepreneurs would go to the debt markets then and say, look, I wanna borrow money from you. And the lender would say, okay, well, I've got two different kinds of contracts that we can discuss. If you'll agree that if your venture goes south, I can come get your house, then I'll lend you money at 6%. But if you wanna sign this other kind of contract where I can only get the assets of the venture and not your house, yeah, I can do that, but then it's gonna cost you 8%. Then I can decide which of those arrangements I prefer. We can negotiate, we can come up with any kind of liability arrangement that suits us both. So the point is there's no illegitimate harm done by creditors from the fact that they can't go after the entrepreneur's personal assets in the event of failure if they knew and contracted for that ex-ante, right? The more tricky issue is the tort one. You know, if a Domino's pizza driver hits somebody's car or hits a pedestrian and puts them in the hospital, should Domino's shareholders be liable for paying the hospital bills, right? So people who claim that limited liability is sort of an illicit grant of privilege will argue that, well, no, in a purely free society, if you own a company, you're responsible for what your employees do. And it's not fair that the person who was hit by the Domino's pizza driver cannot sue Domino's shareholders. That's an illicit privilege to shareholders and it makes more firms become corporations than otherwise would be the case in a free market and let's firms become bigger than the otherwise would and so forth. I don't think that argument is correct. And here's why. It assumes that in the absence of government intervention, the default legal rule, you know, the legal rule under the libertarian code or whatever, would be that the owner of an enterprise is legally liable for any harm done by any employee or contractor. Why should it be that, right? I mean, in the common law, that's the notion of what they call vicarious liability. When are you vicariously liable for something that someone else does? And the common law rule has always been, it depends on the circumstances, right? If a shareholder or the owner of Domino's, you know, said, I say to Christian, hey, go take this pizza to Lou Rockwell, drive as fast as you can, go through red lights. You know, if you hit somebody, don't stop, keep on going and he's following that direct order, then yeah, the victim of the accident could have a legal case against me for harm. But if I say Christian, you know, here's an employment contract, deliver pizzas, don't speed, don't run through any red lights and he speeds and runs through a red light. Well, that's not his, I'm not liable for that act, just I wouldn't be liable if he punched somebody in the face. I mean, it's not obvious that the employer or the owner should be liable for torts committed by employees. It's sort of a complex legal and economic issue, but it's by no means obvious that in the absence of government intervention, the legal rule would be unlimited liability. For torts, right, it makes more sense that some kind of limited liability probably would be established in tort cases under this sort of libertarian legal code, which is exactly what we saw under the common law. So I'm a little bit over my time here. So the conclusion is, does government help big business? Yes, but it helps small business too. Government policy has a lot of effects, diverse, complex effects on firm size and how firms are organized and firm strategy and performance, corporations per se benefit from the state, sure, but they're also harmed as well. And limited liability is not obviously an artificial state privilege. So people say to me, well, what would the economy look like in a purely free society? Would firms be bigger or smaller? My answer is, I don't know, but let's give it a try and find out.