 Well, as you all know, our next speaker is Dr. Tom DiLorenzo. Tom is a professor of economics at Loyola University in Maryland, a senior fellow of the Institute. The author of 14 books. Most recently, Organized Crime, the Unvarnished Truth About Government, just arrived today at the Institute. And it is for this book that the Institute is about to award the Cother Prize to Tom DiLorenzo. George Cother, who died in 2006 at the age of 99, still fighting for freedom. Quite an extraordinary man. Maybe he was the most charming advocate of liberty ever. I mean, just an extraordinary raconteur and gentleman. He and his wife, Ila, were very close friends of Margaret and Livy von Mises. He, especially after Mises' death, he helped Margaret to become what Murray Rothbard later called the one woman Mises industry. He was, ran a successful ad agency. He was a speechwriter for the top CEOs of American corporations, did television work, just had a fascinating career. But all was at his heart was Misesian economics and good writing and what an extraordinary writer he was. And so after his death, his family endowed a George Cother Free Market Writing Award for some extraordinary book that had been published recently. And the first two recipients of this award, which carries with it a beautiful medal and a $2,500 honorarium were Tom Woods and Judge Andrew Napolitano. So Tom DiLorenzo's a good company and of course he deserves to be in that company. And Tom George Cother must be looking, come on up here, must be looking down from heaven because he loved you and I know you loved him as well. And so just a great pleasure on about 12 different grounds too. Thank you so much. Thank you very much. Thank you. I should mention that Tom will be available to autograph his book. I'm assuming there's not gonna be a libel suit from the mafia over comparing them to the government, but Tom, thank you. That's what the cover looked like. I did know George came to all the earlier Mises Institute conferences, including Mises University, before the hotel was renovated, some of you have been in the hotel and had a tiny little bar area and George was 90 and he used to hang out with us, Mark probably remembers this, until they kicked us out and they're talking about praxeology and he had a business card, George Cother praxeologist. It was what this is. But anyway, he was a great guy. I'm a very deeply honored and I have fond memories of old George and he was a great philanthropist as well as a great achiever in his life. And I guess, I don't speak German, but Hans Hoppe corrected me once. I think it's Kota, I think, because there's something like that is how the name should be pronounced. But this is what the cover of my new book looks like. As Lou said, it just arrived by UPS about an hour ago, so hot off the presses. I'll be glad to sign copies if anyone wants one. No extra charge, the same price for everybody. And I'm not a monopolist after all. And so unfortunately, and so the topic anyway, the lecture is monopoly competition and antitrust, which covers a lot of territory. And I see my handout, somebody threw away the overheads I was gonna show. But anyway, where to start? Let me give you a couple of reading suggestions. There's a sort of a classic article on the Austrian view of competition in monopoly. It's called The Meaning of Competition by Hayek. It's in his book, Individualism and Economic Order. Also read the chapter entitled The Market and Human Action. And then of course, there's a chapter on monopoly and competition and man economy and state. And the final thing I would recommend if you really wanna get up to speed in the Austrian view of competition is competition and entrepreneurship by Israel Kersner. And so, but I would start with the Hayek article. It's online also, The Meaning of Competition. And Hayek has always been difficult to read for me. So you have to kind of hang in there. I don't know why it is, but Mises was always clear as a bell to me, but Hayek was always sort of convoluted in his writing even though usually you take a little more effort. So what is competition? I had written a definition down and stuck it on this table, but it's not here. But the way an Austrian would think of competition is a dynamic rivalrous entrepreneurial process. It's an ongoing process. People compete for the patronage of their customers. And that's how Austrians have always thought of competition, sort of like as the average layperson thinks of competition. And emphasis is on the process as opposed to the mainstream theory of competition is what you might call an end state theory and that it's an equilibrium concept. It's a definition of equilibrium. And those of you who've taken microeconomics know that there are these conditions, the assumptions behind the competitive model that have been in all the textbooks for generations are many firms, homogeneous products, homogeneous prices, perfect information and a free entry and exit from the industry. And so that's the mainstream model is the assumptions, the mainstream model. And but of course, and this has created a lot of mischief over the years. And the type of mischief it has created is in the form of what Austrian economists and others call the nirvana fallacy. The nirvana fallacy. And so this model of perfect competition that is sort of the mainstream model and there are variants of it. There are all kinds of variants of it. It sets up and a totally unrealistic unachievable utopian ideal of perfect, a perfect world. And then the typical procedure would be to look at the real world markets and I call it not just the nirvana fallacy that I refer to as a new term that I coined. Aha, economics. Maybe you could put an explanation mark there. You look at that you set up this totally unachievable, unrealistic utopian ideal that could never exist on planet Earth. And then you look at a real market and you say, aha, the real market does not stand up to the standards of this totally utopian unachievable ideal. It has therefore failed. And then the corollary to that, if you're a good economist trained at a place like MIT or Harvard or someplace like that, under somebody like Paul Krugman, the corollary will be to assume, just assume that naturally government will be omniscient and benevolent and will step in and correct the failures of this market. Okay, and the nirvana fallacy or white fallacy is that of course everything compared to nirvana is imperfect. And so you really have no theory at all if all you have is some unrealistic ideal that could never be achieved. And you compare reality to that and say, aha, reality falls short of heaven on Earth. That's basically what it says. I believe it was Harold Dempzetz, the old UCLA economist who coined the phrase nirvana fallacy, okay? And so those of you who have taken courses and heard all the theories, various theories of market failure, that's really the basis. The benchmark is perfect competition. But the nirvana fallacy is pervasive all through it. And if you read the Hayek article that I mentioned, you'll get a real good idea of what Hayek meant when he said in that article that in perfect competition there is no competition. All the real competition is just assumed away by the assumptions. Real competition means, for example, experimenting with the size of business firms through mergers and that sort of thing to discover what the most efficient scale of a business enterprise is. No one can know that in advance. That's what Hayek called the pretense of knowledge. The market tells us this, perfect information. Well, the market reveals information about how to go about minimizing the cost of production, how to market products. Consumers discover what they want and what they like. But this is all assumed to be known in advance in the perfect competition model. So in Hayek's essay, when he said in perfect competition there is no competition, he literally was right. So economists wrote off competition when they invented the theory of perfect competition. They decided to abandon the whole idea of studying competition, really. And so it wasn't always like this, though it's around the late 19th, early 20th century. Almost all economists, anybody who wrote on economics and the whole subject of competition and monopoly thought of it like the Austrian school thought of it. They thought of competition as a dynamic, rivalrous process of entrepreneurship. And as evidence of that, I once did a research project with a co-author named Jack Hayek. And we published this paper eventually. I'll give you the reference for the graduate students in the audience. It's Jack Hayek and me. It's called Antitrust and Competition. I'm gonna abbreviate. Historically considered, it was an economic inquiry way back in July, 1988. For those of you who might be interested in these things. And what we did is we surveyed the opinions of all the economists who wrote anything about the whole subject of competition and monopoly around the time the first federal antitrust law was passed in the US, the Sherman Antitrust Act. And we know we surveyed the whole population because there was an economist named A.W. Coates who wrote an article in the American Economic Review in 1960, I think it was called the American Economics Club. It was about how in the late 19th century there were only about maybe a couple of dozen people who actually had professional jobs as economists. So we were able to survey the whole population of economics profession on this topic. And essentially what they said is that properly understood competition is a dynamic rivalrous process. Therefore, all of these mergers that we're seeing, there was a merger wave going on in American industry, are nothing to worry about. And they were almost unanimously opposed to the whole idea of antitrust regulation as a matter of principle. They thought it was inherently incompatible with competition. Not only do they say, like the Chicago School, economists would say that, well, it's a good lie, it was needed at the time, but if it's only run by smart guys like us Chicago School economists, it would be okay. That's essentially the view of the Chicago School. The Austrians, not all Austrians, but most Austrians I think would agree with the early 20th century, late 19th century economists who said, no, it's inherently incompatible with real competition and is therefore inherently harmful to consumers. I'll give you some examples from our article. Richard T. Ealy, the co-founder of the American Economic Association, wrote that large scale production is a thing which by no means necessarily signifies monopolized production. You see, this is long before the perfect competition model was accepted when many firms became the benchmark. Many firms turned into what is called the structure conduct performance paradigm in economics. And what the structure conduct performance paradigm meant, and this came about around the 1930s, was that the way to evaluate a market and how competitive it was is based purely on market structure. How many firms dominate sales in industry, for example. And so rather than studying rivalry, entrepreneurship, innovation, price cutting as means of competition, economists began studying such things as four firm concentration ratios. That would be the percentage of sales that the four largest firms in the industry had. And if it was a relatively high number, like 60 or 70%, it was pretty much declared to be monopolistic. And it was totally arbitrary. 60% was sort of the arbitrary magic number for many years among antitrust regulators. And so you see, it was totally a different world of understanding of competition once this idea was adopted that competition needs to be defined in terms of many firms. That wasn't the way Richard T. Ealy thought of it. John Bates Clark, whose name is one of the names up here of sort of the Austrians and precursors of the Austrian school. He was the co-founder of the American Economic Association. He wrote in 1888, he said, the notion that industrial combinations would destroy competition should not be accepted. Sort of the founder of the Chicago School back in 1919 was a man named Herbert Davenport, who was very, if you read his writings, very similar to an Austrian economist. He said that only a few firms in an industry where there are economies of scale, that does not require the elimination of competition. So they weren't worried about the elimination of competition. And for good reason, they were observing, these men were observing declining prices for decades. After all, the whole post-Civil War era in the United States was a period of price deflation. So they'd been living through several decades of rapid industrial growth. It was called the Second Industrial Revolution. They saw a tremendous expansion and production in all industries. They saw the invention of hundreds of products that never existed before and they saw prices plummeting year after year every year after year. And why would they think this was monopolistic? They didn't, they didn't. It was only later economists in the 1930s and 40s who didn't say that they were wrong about what they were observing in the economy of the late 19th century. There was a new theory about what competition meant and it didn't fit that reality. Simon Patton, the founder of the Wharton School at the University of Pennsylvania said this, that the combination of capital does not cause any economic disadvantage to the community. Combinations are much more efficient than were the small producers whom they displaced. So he was recognizing that through the, through mergers and corporate growth, what they were seeing was economies of scale and lower cost production and lower prices. And yes, they were, they were, if they were underpricing smaller competitors, good, good, it's lower prices. And if you think that consumer sovereignty is a valued thing that we should have an economy that caters to the preferences of consumers will then striving for lower prices through competition is a good thing. And so this was definitely, these men were all informed, even Richard T. E. Lee, who was a somewhat, a real leftist. You know, when they founded the American Economic Association, the founding document declared capitalism to be unsafe in practice and unsound in morals. If you go on the web and look up the founding statement of the American Economic Association, that's what it says. And so Ludwig von Mises, of course, refused to join the American Economic Association and he was labeled as some sort of crackpot or nut for not doing that. But here they are saying capitalism is unsound in morals and unsafe in practice. And so, and then at the time, well, what's the alternative? Well, socialism. And so von Mises refused to be associated with a group of people who he thought were advancing socialism. And for that, you know, he's the oddball in the eyes of his contemporaries at the time. And so let's take a closer look at this many firms assumption that is one of the keystone assumptions of the mainstream model there. Well, of course many firms, this really wasn't adopted until around the 1930s or so. Frank Knight wrote his famous book A Risk Uncertainty and Profit. And in that book in the 1920s, he sort of outlined as of that day what economists understood competition to mean. And so by then, by the 1920s, the economics profession had changed his view of competition and had adopted the perfect competition model. Okay. And so that's just to give you sort of a timeline of many firms. And so one of the things that many firms assumption did was to ignore the benefits of economies of scale, which, since you're all economic students, you know what that means. That means, let me put up my pen here. It means that cost per unit, average cost declines with output, somewhat like that because of economies of scale. And so the whole history of antitrust in the United States has been a history of government trying to prohibit firms from getting too big. Bigness has been confused with monopoly. And the downside of this type of antitrust policy has been if you had several firms in industry that were producing at an average cost of $1 at this level of output. And the government, for example, the government's first really big victory in antitrust regulation was the Standard Oil Case, which was decided in 1911 that broke up Standard Oil into Standard Oil of Ohio, Standard Oil of New Jersey. And at the time, John D. Rockefeller's company had over 300 competitors, including big companies like Sun Oil Company, which would become Sonoco. And also at the time, the price of his products had been declining for decades, so the price of refined petroleum had been declining for decades very much as a result of John D. Rockefeller's Standard Oil Company. That's how he became the wealthiest man in the world. But by breaking it up, you eliminate the advantages of economies of scale. So all of a sudden here, now your average cost is something higher. I just arbitrarily threw $10 in there. And so the effect on consumers is to force up prices, force up cost and prices by using this measuring rod of competition of being some sort of measuring stick of the many firms assumption. And so you see, and in the field of industrial organization, the many firms assumption was translated into such things as concentration ratios, four firm concentration ratios, eight firm concentration ratios and so forth. And if you wanna read sort of a classic book on this aspect of industrial organization is concentration mergers and public policy by Yale Brosin. The author is Yale Brosin, the late Yale Brosin. This book was published in the 1980s, but it was a survey up to that point of literature on the bigness and is bigness an economy to scale a threat to monopoly? And his answer was no, it's basically a source of efficiency in the marketplace. There was also, and there still is a theory of mergers that for a long time has been known as the domino theory of mergers. And the theory went something like this, that when you see merger waves, as we have seen in history, we've seen waves of corporate mergers. The first one was in the late 1880s in the United States. There was supposedly a domino theory. And the domino theory simply said that these mergers were leading to monopoly in these waves, like a domino effect of monopoly in industry after industry. But in reality, I think what happens with sort of a domino effect of mergers is let's say you had a number of firms in this industry on a screen here, all producing at the average cost of $10. And then two of the firms decide that there might be some synergy involved in merging. One firm is known to have the top engineers in the industry working for it. So it's the tops in manufacturing. It has the best engineers. The other firm has the best marketing in the industry, but they have crappy engineers. And so the thinking of the top executives is that if we merge the two companies, we can have both the best engineers and the best marketing in one big company. And that would be synergy. And hopefully if they're right about this, then they can drop the cost down to something lower. Say $1 per unit, if it works out that way, if it works out that way. And so instead of having say 10 firms competing, now you only have nine firms. There's been a merger of this one firm. So you do have fewer firms. You don't have as many. The traditional way of looking at this as of the 1930s would be suspicion that maybe there's monopoly as a foot because there's a merger wave, domino theory. But actually, what do you expect would happen if you're in this industry and you observe these two firms merging and as a result, they drop their cost per unit of production from $10 to $1. What is likely to happen next in there? Well, to compete, what are you gonna have to do? You're gonna have to try to imitate the same thing. You're gonna have to try to figure out a way to reduce your cost to compete with these guys that were now done at $1 per unit of cost. And one possible way would be to merge with somebody to create economies of scale like they have achieved. And so a lot of times when you see these merger waves, I think that's what's going on. But the standard of interpretation of it under the so-called domino theory was all monopoly. It was all monopoly, it was a bad thing. But that's not likely, I think, to be the effect. Another thing that is ignored by the demonization of concentration in an industry is the market for corporate control, which Peter Klein probably has talked about already or if he hasn't, he will. And this is another explanation of what's going on with a lot of corporate mergers. And the classic article on this was by Henry Manny, mergers and the market for corporate control. The Journal of Political Economy, I think, I'm pretty sure was 1965. And Henry Manny spoke here at this podium a couple of years ago. But in a nutshell, what Henry Manny's argument was, and there's been a huge research on this since then, he was one of the first. And Henry Manny was a law school dean for many years. So he's one of the founders of the law and economics movement, for those of you who aren't too familiar with it. And that a lot of times what's going on with corporate mergers is there'll be a corporate takeover where a corporate takeover specialist will discover that a firm is undervalued. That is, it's not being managed as well as it otherwise could have been. And they'll do this based on research. I can recall the story of several years ago where there was a Wall Street guy who was teaching a night course at I think either NYU or Columbia. I'm not sure what one of the big New York universities. I think it might have been the NYU Business School. And he was a takeover specialist, corporate a reader. Corporate, as his enemies call him, a corporate reader. And he walks into the classroom, according to the article I read in the Chronicle of Higher Education. And these are MBA students. In the offer, he says, anybody who comes up who learns what I'm gonna teach you in this class and comes up with a legitimate takeover target, I will write you a check for $100,000. Pay all your tuition at NYU for your MBA degree. Because he figured obviously to make a lot more than $100,000, I say $100 million, $100,000 for it. And the story was that NYU fired him because they thought it was unsavory for their business school students to be sort of lured into making money in what they learned in business school at NYU. And especially from a raider, a corporate raider. But that is how it works. I mean, there's a whole industry of people trying to figure out very intelligent, highly educated people trying to figure out where the profit opportunity is in starting up a proxy battle, for example. One way in which this happens is a proxy battle. They get a group of wealthy investors together and they start buying up shares of stock. And if they succeed, they'll buy a majority of shares that will enable them to kick off the board of directors, some of the existing people and take over the board. And once you take over the board, you can take over the top executives and replace them and insert a new business model. And it doesn't always work, it doesn't always work. But that's how the market for corporate control works. And that's how competition is imposed on corporate management. If you're lazy and or inept, that's how you can lose your job through the market for corporate control. If you had takeover, that's how you lose your job. And of course, a number of states have passed laws making it much more difficult for corporate takeovers to take place because they were lobbied by corporate executives, of course, using their stockholders' money to get these laws passed to make it more difficult. So we don't have a free market in corporate control in America. But if we had a freer market in the market for takeovers, things would be run more efficiently. And I also, another anecdote I could offer to you was something that really sticks in my mind about this whole subject is there was a PBS show about this years ago during the last big merger wave in the U.S. And I got a good laugh out of it. I thought of it as chickens over here, foxes over here, and the foxes are just eyeing the chickens over here. And the chickens were corporate CEOs, chief executive officers. And the foxes were takeover raters, people like T. Boone Pickens and Carl Icahn and Michael Milken, people of that sort. They were literally there and they had this Harvard Law School professor as the moderator. And he asked one of the CEOs of Procter & Gamble or one of these big corporations, Mr. Smith, what would you do if Mr. Pickens here called you up and said, your company is in play? That is, we're starting a proxy battle, we're buying up shares. And Mr. Smith said, well, I would call a meeting of my board of directors and we would decide what parts of our enterprise we had to shut down, what parts were profitable, what parts weren't so profitable. We would evaluate our human resources policy and he went on and on about all the things he would do to improve the efficiency and competitiveness of his company so that he, then he said, we would do this so we could go to our shareholders and say, you don't need Mr. Pickens. We will improve the value of this company and you'll make money that way, Mr. and Mrs. Stockholder. Now, what question does that beg? Who would like, yeah, why hasn't he already done it? Yeah, why hadn't he already been doing that? Well, because human beings like the easy life rather than the harder life, most human beings. And that's hard work running a big company. And so if you can make money anyway without working your butt off, why not? So it's the fire under the butt that is created, to use the scientific language, is created by corporate takeovers or the threat of a corporate takeover. And so all, but all of this is ignored if you just use the sort of simple-minded, silly definition of competition as market structure. You know, that's kind of neat for playing Blackboard games and mathematical games, game theory and textbooks and journal articles, but it has nothing to do with the real world. Okay, and the final thing I'll mention about this is I'll mention another one of my articles. And it's online. It's called The Origins of Antitrust and Interest Group Perspective. It was published in the International Review of Law and Economics, even older than the other one. I think it was 1984. I was only two years old at the time. And so as a International Review of Law and Economics, I'll just put the letters, 1984. It's called The Origins of Antitrust. The subtitle is An Interest Group Perspective. And at the time, I was a professor at George Mason and I was researching in this whole area of antitrust and it struck me that I had never actually seen proof that there was a monopolization occurring in the late 19th century, because that's the whole story behind antitrust, that the story is that there was rampant cartilization to quote Richard Posner, the Chicago school law professor who wrote a whole book on antitrust. And so I got my research assistant to go to the library at George Mason and get every book he could get his hands on on the topic of antitrust economics or antitrust law and look through them and bring to me the numbers. Where the number, if they're restricting output, like all the economics textbooks said, they're restricting output. That's what monopolies supposedly do. And raising prices, find the numbers for me. He brought, he had a stack of books in my office like this, everything in the whole library on the subject. Not one of them had a single statistic to back up the idea that there was monopolization as defined by the mainstream neoclassical school. So we got our own statistics. We went to the statistical abstract with historical statistics of the United States and found a bunch of statistics on the industries that were being accused of being monopolized by the US Congress as justification for the Sherman Antitrust Act. And what I found was that even though this was a period of economic growth, GDP was growing vigorously for the decade before the Sherman Act that the production levels in these industries that were being accused of being monopolies are sometimes 10 times higher, as much as 10 times more growth. And it was also a period of price deflation. And in these industries, the prices were falling faster for a decade than the CPI, than the price level was. So these were the most innovative, most entrepreneurial, fastest growing, most voracious price cutting industries in America. And they were singled out as monopolies. And the basic impetus for it was that the sour grape competitors who were charging higher prices and who were unwilling or unable to compete, they ran to politics instead of trying to compete with the John D. Rockefellers and the Cornelius Vanderbilt of the world. They ran to politics and tried to stop them through politics through some sort of antitrust law. And so the real smoking gun I thought in my article was that the final thing I had my research assistant do was to dig up what the New York Times was saying about all this. I wanted to know what the media were saying about all this at the time. And interestingly, found out that the New York Times was originally in favor of antitrust regulation. But then they observed what the politicians were up to and they came out against it because the same man whose name is on the Sherman Antitrust Act, Senator John Sherman, his name, he's the brother of General Sherman, by the way, for the Civil War busts out there. He had his name on the McKinley-Tariff bill that was passed three months later. So you had the Sherman Antitrust Act in July and then three months later you had the McKinley-Tariff, which at the time was the biggest or one of the biggest tariff increases in American history at the time. It was a very big increase in the average tariff rate. And at the time, everyone knew that protectionist tariffs were monopolistic. And so you had somebody who, the economics textbooks have called the author of the Magna Carta of Free Enterprise. One textbook that I quote in my article called the Sherman Act and Magna Carta of Free Enterprise being sponsored by the man who's sort of the biggest protectionist and the biggest creator of monopoly power in the United States government, Senator John Sherman. And so the New York Times smelled a big fat rat and they claimed that the Sherman Act was just a political fig leaf used to try to fool the public in their thinking that the government was doing something about monopoly while at the same time creating monopoly with protectionism, which is exactly what they were doing. And so that's the last point I'd like to make about this assumption, the many firms assumption of the mainstream theory that it's not founded in sound theory or history as far as that's concerned. Now the next big assumption in the mainstream theory, homogeneous products, students for generations were taught that this assumption, the purposes of this assumption is that the theory of perfect competition is a theory of price competition. So just as a physicist would make certain assumptions, unrealistic assumptions to try to isolate his or her analysis onto a few variables that are of importance, so would an economist make some unrealistic assumptions about some idealized world homogeneous products so that we could focus on what we really wanna study is price variations. That's basically what economists said for a long, long time. But that's not what the policy makers said. The policy makers use this theory to implement all sorts of crusades against the market based on this assumption, based on this model, this theory. And for example, in the 1930s, there was the monopolistic competition revolution in economics. And contrary to what Milton Friedman would have told you, it was not based on any kind of statistical analysis or positive economics or anything else. It was based on basically two books by Joan Robinson, who was a British economist and another British economist, Chamberlain. And so Robinson and Chamberlain wrote these books on monopolistic competition, which I always thought was sort of an oxymoron, kind of like jumbo shrimp or military intelligence, or like if you don't like country music, you would say country music or whatever kind of music you don't like, that music is oxymoron. But what is monopolistic competition? Well, how can you have that? Well, in a nutshell, the theory said, well, you can have many firms, so they kept that assumption, many firms. But if each firm differentiates its product in a little way, even if you have the perception of product differentiation, you can have a monopoly of every single product. So if I'm producing black car tires, and my black car tires are just slightly different, the tread is different than your black car tires, you and I are both monopolists because we have a unique thing that is not identical, is not physically identical to us, or if I advertise more than you do, in the minds of consumers, my tires are different than yours, they're better maybe if they buy my advertising. So therefore, even though yes, we can have many firms, but each one of them is a monopoly because of product differentiation. And this led to all sorts of attacks and regulatory attacks on advertising because advertising was thought to be the source of this monopoly out there. And I'm not making this stuff up, honest. It sounds, the way I put it to you, it sounds kind of silly, I hope it sounds kind of silly because it is, but this is, so instead of me going through the technical aspects of the downward sloping demand curve of monopolistic competition and all that, somebody else this week will do that, I imagine at some point, I wanna try to get at the bottom line here, the essence of monopolistic competition. And so if you fast forward, keep in mind this theory, this was a great example of the Nirvana fallacy, by the way, but here's essentially what economists were saying, if you take a look at the old classic monopoly model in the economics textbooks, here's a demand curve, marginal revenue and marginal costs. And it's in all the textbooks, here's the monopolist will equate marginal costs and marginal revenue and price at PM and produce this quantity QM. Whereas if there were competition, this would be the level, QC would be the level of output. And so what this led to is an analysis that said that if a company innovates and creates a new product that no one else has yet created, well that's product differentiation, you're a monopolist, you've created a new product, no one else has it, you're a monopolist, therefore what are you doing? You're restricting output, you're restricting output below what it would be if everyone shared your insight and everyone invented the product at the same time. So if everyone invented a product at the same time and you had maybe a hundred people who had the light bulb went off in their heads at the exact same moment and they invented the product and they all got a went and manufactured the product, then QC would be the level of output right here. But that didn't happen, only you had the idea and you're at QM. Therefore there's an output restriction from QC to QM which is anti-social, it causes a dead weight loss here and therefore the government should step in and regulate innovation and or perhaps force the innovator to share his or her ideas with his competitors. This by the way is what the Microsoft's competitors wanted when they were behind the lawsuit against Microsoft the federal government put into place several years ago. What they actually wanted was for Microsoft to share the code for words with everybody. It would be the equivalent of forcing Coca-Cola to publish the recipe for Coca-Cola or forcing Colonel Sanders to publish the recipe for Kentucky Fried Chicken on the web so that anybody could compete with them. They didn't succeed in the Microsoft any trust case but that's what they were trying to do and they used some version of this argument to make the case that the government should force Microsoft to give away all its secrets. And so there was a famous, at least among those of us who study these issues or have researched them, there was a famous antitrust case that economists refer to as the cereals case based on this theory. And this was on the Federal Trade Commission. The US government enforces antitrust regulation through the antitrust division of the Justice Department and the Federal Trade Commission then there are state attorneys general also. And they sued the Kellogg's General Mills and General Foods in the late 70s for what they called brand proliferation. I'm not making this up. You can look it up on the web. Brand proliferation. And they hired an economist named Friedrich Scherer who at the time was the big shot industrial organization economist. He was a Harvard for a long time. Where else? All the bad economists you hear about, read about in history all came through Harvard at some point. And so what was brand proliferation? They claimed that these three companies had a 70% market share, Kellogg's General Mills, General Foods, and they just assumed that they must have gained a high market share through some sort of nefarious deeds and monopolizing the cereal market, the dry cereal market. And what was the nefarious deed? Brand proliferation. They produced lots and lots and lots of different types of cereal. Whereas previously you only had corn flakes and maybe one or two other things, those are the good old days. But these three companies experimented a lot and they came up with dozens of new products and most of which we didn't like. So you could see it to this day you could always go to a grocery store and you see all the stuff no one wants. You can buy for a dollar a box. So this was always going on in the industry. And but it was based, a share came up with this idea of brand proliferation and it's really based on the old monopolistic competition article that product differentiation is a bad thing, innovation is a bad thing because it creates monopoly. And they lost, but the government lost the case. It didn't prevail. It did cost these companies many millions of dollars and the judge in the case actually said something to the effect that in his decision that, well, I don't even like dry cereal. I eat bacon and eggs in the morning. And what he was saying is, well, there are a lot of substitutes for dry cereal. So no matter how popular your dry cereal is, if you try to charge some sort of monopolistic price, well, people can always shift to have bagels or muffins or oatmeal or bacon and eggs. You know, you're defining the market too narrowly here. And so the judge sort of educated himself a little bit in sort of freshman level economics, unlike Friedrich Scherer and the economists that the government hired to prosecute Microsoft with who stuck with basically the same theory. And so the Austrians would look at this in a totally different way and that when you see brand proliferation, what you're seeing is an attempt by companies to compete for customers by giving them what they want. I can't see this, I guess it's not too good. I thought we'd be able to show up better. I think I have another one here that might be a little bit better. I guess the printer didn't do a very good job. Now what this is from is from the 1998 annual report of the Dallas Fed. And it's on a subject called mass customization. It's about the integration of computers and manufacturing and how it is now. If you wanted to buy a new car today, you could go online, say you decided you wanted to buy a Toyota Camry, you could go online, go on any number of websites including toyota.com, you click on Camry, you click on all the add-ons you would want. And then if you want to finance the car, you click on finance the car, you apply for a loan and within three to five days, the nearest car dealer will have your car, tailor made for you. When Henry Ford became a very wealthy man in the early 20th century producing cars, his famous slogan was you can have any color of a Model T you want as long as it's black. And so mass production in the 20th century basically meant producing the same exact thing in huge volumes to achieve economies of scale. But mass customization, the integration of computer technology and manufacturing allows you to make money through niche marketing, through marketing to tailored preferences, diverse preferences of consumers. And also the marketing people will tell you that more affluent societies tend to have more diverse preferences for all sorts of products. And so what this thing is on the screen if you can barely make it up, the economists at the Dallas Fed did a survey of all kinds of products and the variety of the products from 1980 to 1998 and there's laundry soaps, 12 versus 48, health drinks, four versus 70, soft drinks, 26 versus 252, bottled water, 12 versus 125, beer, there were only 25 types of beer in 1980 in the United States. And by 1998 it's 187, there's probably 1800 or more by now, something like that. So this article was about this mass proliferation, brand proliferation writ large. Frederick Sherram must have had a heart attack when he heard about this and the other economists at the Federal Trade Commission who tried to sue General Mills out of existence over doing just this. But of course what this is all about is they found a way to be even better at pandering to customers, at catering to customers, giving them exactly what they want by experimenting with all this variety of products. You know, mouthwash, it's 15 versus 66, running shoes. There are only five styles of running shoes in the early 70s. There are a few people in the room that are still, my era who can still remember the Tyrannosaurus walking, roaming the earth and that sort of thing. But usually when I was a freshman in college, if you saw somebody jogging, most people would probably call the cops. He must have robbed the store, he must be running away from the police. You didn't see nobody jogged in that time. And so there were only five running shoes styles, but by 1990s, the Dallas feds said there were 285. And so are you better off or worse off that you no longer have only five styles of running shoes today? And so that's how the Austrians will look at this, that the brand proliferation is an inevitable consequence of competition. The next assumption on perfect information, the perfect information assumption has also caused a lot of mischief in economics and especially with sort of the foundation of all sorts of attacks on advertising. There's a sort of a famous critique of the critiques of advertising by Friedrich Hayek. And his article is called the non sequitur of the dependence effect. I suggest you write that, the non sequitur of the dependence effect. The dependence effect is something that John Kenneth Galbraith was famous for. It's pretty much the main point of all his books, not including his multiple autobiographies that he wrote of himself, but the books he wrote on economics like the affluent society, pretty much all this dependence effect. And it pretty much argues that advertising induces us, dupes us in spending our money on things we don't really want because these wants are fabricated in our minds by advertisers. Therefore, if we get rid of the advertisers, we won't waste our money on all these things. And most importantly, according to Galbraith, we also will not resist being taxed more heavily so that the government can give us things that we really want. That is the dependence effect. John Kenneth Galbraith wrote very many big books about this stat, this fact, saying essentially what I just said, but in maybe a thousand pages or something with all kinds of stories and rhetoric. That's pretty much what he did and became, he's Harvard economist naturally, John Kenneth Galbraith. But Hayek, you could find this Hayek article online. I think it was originally published in the Southern Economic Journal around 1960. And he made some good points and he makes a point that, well, if you believe Galbraith, that only the things that are innate to our own minds are worth spending money on, then all of John Kenneth Galbraith's books would be worthless because after all, we didn't think of them, he did. The Bible would be worthless, the works of Shakespeare are worthless because I didn't think of the Shakespeare in plays, Shakespeare did. I didn't write the Bible and so worthless. And so Hayek says in his article, the only really truly innate human wants are food, shelter, and sex, he said. And so not necessarily in that order, I think he said in the footnote, the footnote to the article. But everything else is brought to our attention. That's the world, it's called the International Division of Labor. That's what makes the economy work, the fact that we bring to others' attentions, hey, I've been working with, need my colleagues at this company, we have this great new product. What's wrong with that? And if you like our great new product, that's how the free market benefits us. And so Galbraith had it all backwards as far as that goes and Hayek really shot them down very well by making that point that all the great works of Western literature, the Bible and so forth, would be worthless and Galbraith's books according to his own standards as far as that goes. And also to think about this, if in terms of competition, advertising is a tool of competition in the eyes of an Austrian school economist, but it has always been almost all the textbooks in microeconomics, you read the section on advertising, they'll tell you about the theory that, well, advertising forces a business to incur an additional expense, and that expense might be a barrier to entry to smaller businesses who cannot afford the expense of advertising to compete with Procter and Gamble, whoever they wanna compete with, and therefore advertising is a barrier to entry. And so in most of the textbooks that you'll find on the shelves, they'll say just that, they'll say that advertising as expenses are a potential barrier to entry, but that ignores the whole process of competition in the process of advertising. And in economics literature, imagine, well, let me ask you this first, there's an old story, I've used this in my lectures for a long time, but some years ago, the Holiday Inn Hotel Chain teamed up with the Sierra Club and some environmentalist groups and it helped them fund a sort of a campaign to ban roadside advertising, billboards on advertising, because the environmentalists said, we've got this beautiful cow pasture here on Interstate 85, and then there's a big billboard saying Hampton Inns, we don't want that. And so that's a big hint. So why would Holiday Inns be, do you think, be interested in banning billboards? Yeah, they build next to the freeway and what do they say? They say things like stay at Hampton Inn. They'll say stay at Holiday Inn, they say stay somewhere else. But see Holiday Inn already had a reputation, they had a brand name. People already knew at that time, you know, for about $59, you could get a reasonably clean room with not very many roaches, stale donuts, and a swimming pool filled with children's urine. That's pretty much Holiday Inn. So if you want to pay 59 bucks and you stay away from the pool and the breakfast, you can crash and then get on your way on the Interstate. But you might not know that you could stay, pretty much get the same thing for 1995 at Motel 6. If there's no billboard, you're driving down the road. This is before the internet, by the way, that this happened. So if you're driving down the road, it's late at night and you're getting tired, you're looking for a hotel, well, billboard advertising will help you get a deal. But if not, you might think, well, I know about what, there's a Holiday Inn, I know about what I'm gonna get there. And so bans on advertising actually are harmful to competition because advertising is a tool of competition. It lets us know what's out there. Even the silly ads, you know, when they had the Swedish bikini team advertising Budweiser, that didn't tell you anything about whether Budweiser is a better tasting beer than Sam Adams or anything else. And Budweiser, I don't know why Budweiser did that, but because it's not as though nobody knew Budweiser existed and they had to hit you over the head with this to let you know we're here. But sometimes they do that. A new company will advertise in some sort of weird way just to let you know they exist. And they must figure that enough people will check them out, see what the product is like, or else they wouldn't keep spending money year after year on that sort of thing. So even ads that seem foolish and really not very informative, at least tell you who's there. One final point I wanna make about the mainstream theory is I had somebody threw away my paperwork here, but I want you to help me with a little math problem. How many days in a year? Who's a math major here? Who can tell me? 365. Okay. How many baseball games do they play in professional baseball? The 162, I'll take that from Mark. How about football? 16 plus playoffs? Okay, how about basketball? Anybody know basketball? I'm gonna explain to you the professional sports monopoly in America. What was the basketball number? 82. 82, okay. Well, the hallmark of monopoly in the mainstream theory is output restriction. Output restriction, that's what monopolists are supposed to do. You know this model, there's output restriction, that's what monopolists do. Who sees an output restriction here in these numbers? Why don't they play 365 baseball games? Why do they only play 16 football games? Why not 365 football games? They're restricting output. Who's a fighting fan? In my day, Muhammad Ali was the big guy. But now they don't even box anymore, do they? They kill each other in cages. How many cage fights does the average top-notch cage fighter go through? A year, per year. Two, maybe two, maybe three. So they don't fight like Brad Pitt did in that movie, Fight Club, every night. Bear Knuckles Fight Club. Two or three a year, they're restricting output. Why aren't they fighting every night? Well, that is the standard, isn't it? Output restriction. And so the point I'm making here is that, well yeah, it is true. We don't all work 24 hours a day, 365 days a year. Therefore, we all are restricting output. And so the whole idea that output restriction below some sort of utopian ideal, perfect competition in equilibrium is really a nonsensical idea because of course everybody restricts output. That's, and I guess the final, I only have a few seconds left, but to relate this to public policy, there was a federal trade commission economist I spoke to at a conference once that was bragging that they were gonna try to force Detroit auto dealers to stay open past 5 p.m. in the winter. They were closing down at 5 p.m. in downtown Detroit in the winter and the FTC wanted them to stay open until nine o'clock because they were restricting output, he said. And so I asked him if that meant that to achieve economic efficiency, it requires forced labor. And he didn't answer because obviously the answer is yes. You know, if the government comes in and forces them to play 160 football games a year, that's forced labor, it's slavery. And so economic efficiency requires slavery. That's all ridiculous, the theory is. And Mark Thornton is threatening to wrestle me down off the podium, so I guess my time is up. Thank you.