 Our next speaker is Dr. Thomas DiLorenzo. He will be lecturing to us this afternoon on the topic of competition, monopoly, and antitrust. John? Kim? Thanks, Mark. I thought I'd put a few readings here. If you want to introduce yourself to the Austrian way of thinking about competition and monopoly, these are some readings that I've recommended these on the advanced reading too, some of them. The Hayek article, The Meaning of Competition, is on the web on misis.org, you can find it. And of course, as is Murray Rothbard's Man economy and state. Chapter 10 is the chapter of monopoly. So that's worth reading. And then a real classic book in the Austrian economics is Dominic Larmontano's book, Antitrust and Monopoly, Anatomy of a Policy Failure. There's also a shorter version of it that is online, the shorter version is online, the bigger version is sold by the Independent Institute. And it's just a great book if you really want to learn something about at least the American experience in the history of antitrust, that's the one to read. And then Israel Kursner, of course, is a big name in the whole area of competition, entrepreneurship. And so his book, Competition and Entrepreneurship, is a classic. And I ran out of room, there's an article that I published 100 years ago with Jack High in a journal called Economic Inquiry. And I'm gonna talk a little bit about that article today, but it's also, I think, a good quick summary of the importance and significance of how the Austrian view of competition differs from the so-called mainstream view of competition. Okay, so that's just some tips on reading for now. And so you'd think economists of all the things they would have, they would know what competition is about. So you would think that's one thing, but not really. Not really. And I'm gonna put something else up here, there's sort of a difference. Fuzzy there. This is just my definition of the Austrian view of competition. Competition is a dynamic rivalrous process of discovery and entrepreneurship. And of course, there's no key word, they're all equally important. Dynamic means ongoing and evolutionary, never ending. You can never end competition. For example, government had legal monopolies on cable television for years. Most cities in America, where companies were given legal franchises to be a monopoly, but satellite technology broke that up. The postal express statutes in the US make it illegal for you to send a letter in competition with the post office, but who needs the post office with email? And so competition is never ending and evolutionary. It's rivalrous, of course. The whole purpose of competition is to win the customers over to you at the expense of your competitor, in most cases. And it's a process. It's a process of discovery, discovering what? What's discovering what consumers want on the part of a business? It's discovering how to go about producing those things. What input combinations are best? Will a merger be good or bad for your bottom line? And all the other types of business practices that are engaged in, these are all things that have to be discovered in the marketplace, but they're also all things that are just assumed to be known by the standard model. And so in Hayek's famous article on competition, one of the things he says is that all the elements of competition are assumed away by the competitive model, the so-called perfect competition model, which is really not a model of competition at all, as we'll see. And so real competition in the real world involves product innovation and differentiation, price cutting, advertising, mergers, and all these other free market activities. These are all things that have been condemned to some degree by the mainstream of the economics profession over the years as possibly monopolizing and in need of correction by government regulation. And this is all part of the so-called market failure literature that you're all, some, not you're all, but most of you are familiar with and you've taken microeconomics. Okay, so it's very different definitions. Of course the, and this way of thinking of competition by the Austrians was pretty much the way anyone who studied economics thought of competition from the time of Adam Smith and even before the time of Adam Smith. You know, he wrote his famous book, The Wealth of Nations in 1776. It was first published until about the 1920s in the United States. Okay, and as an example of how that went is one of my articles that I'm gonna mention a little more later is called The Myth of Natural Monopoly. And it was in the Review of Austrian Economics in 1996. Part of it, I quote what some of the American economists said in the late 19th century about the first federal antitrust law, the first federal anti-monopoly law. It's called the Sherman Antitrust Act. It was named after Senator John Sherman of Ohio, who was the brother of General William Tecumseh Sherman, the famous Civil War General. It was very popular down here in Alabama, by the way. What's that? Especially in Atlanta, Georgia, yes, nearby. But at the time, at the time the first federal antitrust law was passed. And this is a subject of this article in mind with Jack High from Economic Inquiry that I put on earlier, that the economics profession was unanimously opposed to the whole idea of antitrust regulation as a matter of principle. They thought it would be inherently incompatible with competition. And at that time, there were only really a few dozen people who had careers as economists in America, as academic economists who wrote anything in articles or books or magazine articles on the whole subject. So we were literally able to survey the entire population of economists at the time and see what they were writing about this new antitrust law. We didn't take a random sample. We got everybody. And I'll give you some idea of what was being said. The co-founder of the American Economic Association was a man named Richard T. Ely. And he was quite a statist. He wanted to nationalize the public utilities and things like that. But here's what he said about the merger way that had been occurring, corporate mergers. He said, he wrote that large scale production is a thing which by no means necessarily signifies monopolized production. His co-founder of the American Economic Association was John Bates-Clark. His name is up here somewhere. I forget where John Bates-Clark is, but he's behind me. Is it over here? There he is right there. And he who was very instrumental in the development of a marginal productivity theory, John Bates-Clark. He said, the notion that industrial combinations would destroy competition should not be accepted. Really the sort of the founder of the Chicago School in economics was a man named Herbert Davenport. He was also sort of a fellow traveler of the Austrians. He said that only a few firms in an industry with our economies of scale, it does not require the elimination of competition. So they recognized that competition really had little or nothing to do with how many firms there are in an industry because they believe competition was dynamic and ongoing. It wasn't determined by the number of firms. Davenport went on to say that without large scale production, the world would revert to a more primitive state of well-being and would virtually renounce the inestimable benefits of the best utilization of capital. And so that's the way economists thought about such things as mergers and market structure. That is the number of firms competing within industry at the turn of the 20th century in America and elsewhere in the world for that matter. Because they all looked at competition, essentially like the Austrians did, the Austrian definition of competition. And then there was a change. There was a change in the theory of competition. And you've heard something about this when the economics profession decided that it would be a good idea to try to ape the field of physics, to try to look more scientific. And because the hard sciences as they're called were gaining more and more notoriety in the late 19th, early 20th century for all sorts of reasons. And the economists were sort of jealous of this, envious of this. And so they adopted sort of the mathematical method as a way of explaining economic behavior or so they thought. And this way of looking at competition, the way competition had been studied since before the time of Adam Smith did not really lend itself that much to mathematical modeling. Human behavior is not always linear and twice differentiable and all that. So the hell with human behavior, that was pretty much the idea. We're gonna model things. It's not necessarily consistent with human behavior. And this reminds me of a, there's certain things that stick in your mind about your education. When I was in graduate school, there was a well-known mathematical economist. His last name was Ng, N-G. And he had a model of the hamburger market and a mathematical model. So as most graduate students in those days did, we had to sit in these rock-hard chairs and watch this guy put a zillion equations on the blackboard for about 45 minutes. And then one of my professors, Gordon Tullock, said, but this is nothing at all like the hamburger, the real hamburger market. And Professor Ung's answer was, well, I don't care. I care about my model. I don't care about the hamburger market. And that was an important lesson to me because it taught me what mainstream economics was all about in those days. It's all about playing games with math. It wasn't about understanding how the economic world works. And that is also, it was at the same semester that I was taking microeconomics using human action as a textbook and human action and Friedman's Price Theory as if I had two textbooks. And so that made a big impression on me of what the economics profession was all about at the time. And so what happened about in the 1920s in order to make the study of competition more amenable to mathematical modeling, you know, these various, there are other types of assumptions that have been added over the years. But rather than looking at competition as an ongoing process, the model was developed as more or less as an end state, as an equilibrium condition. And these are the assumptions that if you've ever taken principles of microe or any microe, you know, these are sort of basic assumptions beyond the competitive model, as it's called or the perfect competition model, that was developed in pretty much by the 1920s and 30s. Homogeneous products and prices, many firms, perfect information, costless entry and exit. And originally, these assumptions, you know, the standard account is that, you know, the assumptions can be totally unrealistic but what counts is can the model explain and predict? So it doesn't matter if the assumptions are unrealistic, the story goes, this is the famous, you know, Milton Friedman's famous essays on positive economics, which lays this all out, which by the way, is a normative statement. There's no hypothesis testing in his essays in positive economics, but which I always saw was kind of funny, but that's the standard approach. It doesn't matter. But what has happened in the study of competition though, is that economists, lawyers and policy makers have taken these assumptions over the years, not in every instance, but in many, many instances, as actual descriptions of desirable competition. So that if products are not homogeneous, there's something suspicious. There might be monopoly power afoot. If prices differ, there's something suspicious. It's not perfect. If the number of firms declines, maybe we need to get the antitrust division of the Justice Department to look into this, perfect information, one of the silliest variants of the perfect information assumption got Joe Stiglitz, a Nobel Prize a few years ago, asymmetric information, but ask yourself this, who has more information about manufacturing the automobile that you are driving right now, you or the company that built the automobile? Who knows more about how to get a cow standing out in the field and turn it into a nicely packaged piece of filet mignon in the grocery store? You or the farmers and the grocery store owners? And on and on and on, the whole economic world works under capitalism because of asymmetric information, different information in the minds of different people, or different interpretations of the same information. There's a big literature in economics that says this is market failure. This is a failure of the marketplace if we don't all have equal information. It's sort of egalitarianism gone insane to assume that markets need regulation and correcting by government unless there's perfectly equal information in the minds of everybody. That's essentially what Joseph Stiglitz won the Nobel Prize for. And of course, if there is a real asymmetric information problem, it's with government. For example, whenever we get into a war, it's always the executive branch bureaucrats who do all the negotiating and with other governments that get us into wars. You and I as citizens have nothing to do about it and we know nothing about it. And that's true of most of what government does, isn't it? It's called rational ignorance in the public choice literature. So if there is a problem with asymmetric information or unequal information, I think the big problem is that the government knows a lot more than we do about what it is up to and we really don't have much incentive to acquire that information really. We're rationally ignorant. But so these are the assumptions. These are the assumptions. So what I wanna do next is just talk a little bit about the consequences of changing the benchmark of competition from dynamic rivalrous process of entrepreneurship and discovery to these assumptions. What have been the consequences of that? And of course, if you look at the homogeneous product assumption, one of the things that economists have done over the years is there have been various critiques of product differentiation as potentially monopolizing. The most famous critiques were in the 1930s of two famous books written on monopolistic competition. One was by Edward Chamberlain, monopolistic competition. And there were several books written pretty much said the same thing. And what these books said is that, well, if you look at the marketplace, yeah, you could have car tires. See how it sounds like a homogeneous product, tires for your car. But some have white walls, some have black walls, some have thicker tread, some have thinner tread. And any difference like this of product differentiation means that pretty much everything in the marketplace is actually a monopoly. Even if you had a hundred people selling car tires in a metropolitan area, the fact that each set of tires is slightly different than the others means that they're all monopolies. So monopolistic competition meant the competition part is you could have many firms selling tires, but if they're differentiated, that's monopoly. So monopolistic competition became sort of like jumbo shrimp or military intelligence or oxymoron. Joan Robinson is the other author of these famous books. Do we have a boo there? Somebody from England, I assume, who knows about Joan Robinson. Now, when she died, my good friend, Jim Bennett, said, thank God she died before they gave her the Nobel Prize, but she couldn't do that. Joan Robinson. And so what came of this is I'm not gonna put the monopolistic competition model on the blackboard, but the standard monopoly model in neoclassical economics. There's a demand curve, a marginal revenue curve, marginal cost, let's say it's a constant cost industry. Here's a monopoly price, and here's a monopoly quantity. And the standard model says, well, if there was competition, this marginal cost curve would be the supply curve, and this would be the amount of supply, QC, and this would be the price, PC. And so the thinking of a lot of economists for a lot of years was that, well, if somebody invents a new product or differentiates an existing product, and they create literally a monopoly defined as the single seller of something. That's what the standard neoclassical definition of monopoly has been, a single seller of a product. Well then, what happens is if you innovate and create a new product, you create a monopoly, and so this is the quantity of output, QM. But if you compare that to a situation where, say, 100 people had the same ID in their head at the exact same time, the quantity would be QC. It would be the perfectly competitive level of output. Therefore, product innovation creates monopoly power, which is in need of regulating by the government. And so the British government years ago, when they were under the sway of Robinson and Chamberlain, tried to homogenize the housing stock in cities in England, for example. In the United States, there's those of us who study antitrust regulation, know there's a famous antitrust case, a federal government antitrust law case that is known as the cereals case, as in breakfast cereal. And this was in the late 1970s and early 1980s when the Federal Trade Commission sued general mills, general foods, and Kellogg's, three companies for monopolizing the dry cereal industry because they had a 70% market share among these three companies of dry cereal. And they hired an economist named Friedrich Scherer to be their expert witness, the government did. And Scherer came up with a brand new theory of monopoly called the theory of shared monopoly. They claimed that these three companies were sharing a monopoly and the tactic they were using was brand proliferation. It was probably also brand proliferation too, but brand with a D, it probably was. It's a brand proliferation. And so if the government pays an economist enough, they'll say anything, apparently, and Friedrich Scherer did. And so they spent years in court arguing over is Kellogg's and general mills and general foods a monopoly, but what happened in the end, the cereal companies won the lawsuit. They defeated the government. They didn't force them to break up or anything like that. But when you win a lawsuit against the government in any trust, you don't really win because it cost you millions of dollars in legal fees and thousands of hours of time that people had to divert to fighting the government as opposed to producing better products for your customers and making money and being a business person, rather. And so you'd never really win. But in the end, what happened was there's a famous quote by the judge in a case that I could paraphrase it. He said something like, I don't like dry cereal. I eat bacon and eggs in the morning. And the point he was making is that they defined the market too narrowly. There are a lot of substitutes for dry cereal so that even if they had some sort of monopoly power and raised the price of dry cereal, people could easily have bagels or oatmeal or bacon and egg, other breakfast foods are readily available as far as that goes. And of course, what's to stop other companies from underpricing them? They didn't even accuse them of having a single monopoly. They only had 70%. They didn't have 100% of the market. And so what happened was these three companies were among the first to be successful at mass marketing healthier dry cereal, granola and things like that. Whereas prior to that, it was all sugar-covered corn flakes and things like that. And it really cut on in the 70s. And they were rewarded with their entrepreneurship with big profits. And no one was stopping their competition from doing the same, from investing many millions of dollars in R&D and marketing research and putting out these new products. And so as a reward for taking all this risk and spending all this money, developing all these new products that consumers loved, they were punished by the government with an antitrust lawsuit. And a lot of times these lawsuits are instigated by the competition who know that they're phony and they know that it's a bunch of baloney, but they also know that it'll tie up the competition in court for years and divert their attention away from the fundamental business and then force them to deal with the government bureaucrats instead of dealing with their customers. And so that's, it was a bit of a success for the competitors of these three companies. And but the theory of perfect competition was at the bottom of this. This is how Frederick Scherer was able to be the expert witness. He was a Harvard professor at the time and he invented this theory of shared monopoly. And but it was basically based on this. And this type of thinking that came out of this assumption is an example of what is called the Nirvana fallacy. The Nirvana fallacy in economics. I think the phrase was coined by the economist Harold Demsets, who used to teach at UCLA. And there was an article he published in the Journal of Law and Economics around 1970. It was 69 or 70. It was called Information and Efficiency, another viewpoint, Harold Demsets. And the Nirvana fallacy is basically what welfare economics is all about. You pick some sort of situation that is totally utopian and unattainable, like perfectly competitive equilibrium here in a world where everyone has perfect information and everyone knows everything. If one person invents a new product that people like, everyone knows that invention. It's assumed to have perfect information of everybody, not just one person. And then you compare that utopian unachievable ideal to the real world, right here, which comes up short. And then you say, aha, the market fails, okay? All together now, you know, you can, you know. So, you know, I used to call it aha enomics because they would, because all these mathematical models in welfare economics basically do this. They spin a tale about what competitive equilibrium would like in this never, never land of perfect information, free entry and exit, blah, blah, blah. And then say, oh my God, the real world does not look like heaven on earth. But government does, government does. Okay, they don't apply the same, they never apply the same criterion, Pareto optimality to government. I can recall being at a conference once where this was being discussed. And a friend of mine, Dwight Lee, asked one of these hotshot welfare economics theorists from Yale, or the guy from Yale actually asked the question, well, what criterion do you think should be used for to analyze government behavior? And Dwight Lee said the same criterion, Pareto optimality. You know, why would you use a different criterion in economics? And so if you use the same criterion, then of course government would be infinitely more failing than the marketplace. And the guy from Yale didn't like that. He didn't change his ways at all as far as that goes, but that was the right answer. And so yeah, if you compare the real world, like someone invents a product that people like to the situation where 100 people had the invention at the same time, yeah, the real world falls short. But the real comparison is the real world of the output level QM to this output level, zero. When you innovate a product, you increase the production of something. You increase consumer welfare. You increase consumer surplus as they call it because you're going from zero to something. But the sort of dishonest way, I think that the new classical economics goes about it is to compare something to the unachievable utopian ideal of nirvana out there. And so the market always comes up short when you do that. And so, you know, on contrast, the Austrian way of looking at this is that product differentiation has always been looked at as a competitive tool. That's how you compete, you innovate, you experiment. You try to find out what people want. You don't always do the right thing. You waste a lot of money. Those cereal companies, you know, to this day, if you go to a grocery store, you know, the cereal aisle, the dry cereal aisle is sort of mind-boggling with all the stuff because they're still experimenting a lot. Some of it catches on and some of it doesn't. And then you can always go and find the $1 box of cereal. That's the junk no one wants. And so how many people buy that box whenever you go to the store? Just one guy, yeah. He does look kind of sickly back there. But the most unhealthy stuff. But this, I don't know if you can see these numbers, but what this is, I guess people on the front can maybe see some of these numbers. What this is, this is from an annual report of the Federal Reserve Bank of Dallas, 1998. And done by an economist named Michael Cox, who's a very good economist. And there was an article about a phenomenon called mass customization. The integration of computer technology and mass production of cars and just everything. And a big point of this report, this article, is that the integration of computers with manufacturing has totally changed manufacturing. In the old days, Henry Ford became one of the wealthiest men in the world by saying such things about his Model T automobile that you can get any color you want as long as it's black. And so it was economical to mass produce the same thing over and over and over again because you could achieve economies of scale, very low cost per unit. And that would make it profitable to produce cars very cheaply so that anybody who had a job could afford a car. And that's how Henry Ford became very, very, very wealthy. This has all changed with the integration of computers and manufacturing. You don't need to mass produce. Even with cars, most or all of you probably know, if you were to go buy a new car this afternoon, well, you just go online over here at this computer and you pick out the car that you want, you click on all the add-ons that you want, all the type of stereo you want and everything like that. And then when you're done with that, you go to the financing part. And if you want to finance the car with a loan, you apply for a car loan online. And the whole thing will take maybe 10 or 15 minutes. And then in a week, they'll deliver the car to the nearest car dealer to your house. Even if you do it from Auburn and you live in Seattle, you can tell them deliver this car to the car dealer nearest my zip code in Seattle. And then you can do that. So they can tailor make the car just for you and thanks to the integration of manufacturing computers. And what this is, is I did a survey of the proliferation of products that have come about as a result of this. And it's all real mundane stuff. Soft drinks, 26 brands in 1980, 252 brands in 1998, even bottled water, 12 to 125 brands, coffee, 11 to 384 beer. In the bad old days, when I was a college student, there were only a couple dozen types of beers. Now, this is probably more like 1800 today, other than it was 187 in 1998, but anybody can make a beer. I ran into a former student of mine in Baltimore at a restaurant and he's graduated. I asked him, what are you doing now? And I was expecting to know where he's working or something and he says, I'm making beer in my bathtub. He was very excited. He was going to a beer making class and he's making beer in his bathtub. So anybody can make beer. How many of you have had dogfish head beer? I used to have a condo in Rehoboth, Delaware where dogfish had started. And it was just a dinky little restaurant about the size of Mama Goldberg's there. And these two guys just made beer in the back. And now it's, you go anywhere in America, there's dogfish head beer out there. So it's a, and this is pretty easy. Shampoos and conditioners, fragrance, everything that you look at and they have another table, book titles even, proliferated software titles. There was zero in the early 70s and it's probably 250 million today. It's 250,000 in the late 90s. And so what these numbers illustrate is that in the sort of the competitive world, product differentiation does exactly the opposite of what the perfect competition theorists originally said was the effect of this sort of thing. Just the opposite, okay. Homogeneous prices, the other assumption, the big assumption there. There's no reason to believe firms will all charge the same price. There are different intensities of demand in different markets. The kind of mischief that this has created is for example, it is true that with regard to antitrust regulation, if you keep your price the same for a long period of time, you may be sued under the antitrust laws for price fixing. If there are numerous competitors and the price in a market stays stable for a long time, you might be suspected of conspiring to fix prices and you could be sued for price fixing. If you raise your price, of course, it could be monopoly, if you're raising your price, monopoly power, so you could be sued under the antitrust laws for raising your price. If you cut your price, you can be accused of predatory pricing. There's a scheme afoot of pricing everybody out of the market and then once they disappear, you're gonna charge 10 times higher than what you're charging now. And so no matter what you do with your price, keep it the same, you raise it, you cut it, you can be sued under the antitrust laws for violating some aspect of the antitrust laws. And so this assumption that competition means homogeneous prices has led to that. And if you read Dominic Armatano's book that I put up earlier, he analyzes from an Austrian perspective, this book was published in the early 80s, but up to that point, it was the 55 biggest federal antitrust cases in history up to that point. And he analyzes the economics of it from an Austrian perspective. And in every single case, he concludes, the companies that were sued were either increasing output, cutting their prices, innovating and creating new products or some combination of those three things. And for that, they were sued and tortured for years by the government out there. The many firms assumption has probably been the most mischievous. I read you those statements from the 19th century economists. They didn't care, they were, see the late 19th century in America was a period of price deflation. From 1865 to around the turn of the century, there was price deflation. And so these economists were looking at all the technological developments in steel manufacturing and cement manufacturing and all these various industries. And they were seeing a large scale production, they were seeing mergers. And at the same time, they were seeing prices falling for years and years as a result. And it was all good. There were new products that did not exist before. They were cheaper than before. They saw no problem with that. But the new theory, you see, the markets did not change in the 1930s. The definition of competition by economists changed. So all of a sudden the exact same markets were condemned as monopolistic in the 1930s. And some of them blamed for the Great Depression even though the markets had not changed. It was the economic theory of markets, the prevailing theory that changed. And so this has led to endless problems too because the earlier economists were right. The main cause of, the main effect rather, the main effect of all these mergers in the late 19th century was to create economies of scale, lower costs of production, and lower prices. They were fueling the lower prices. Everyone knew that. Okay, so if you invoke the government to break up these companies, break up these firms, what are you gonna do? So this, you know, to draw a picture, a familiar picture to most everybody, if you look at the relationship between output and cost, the long run average cost, the long run average cost is falling because of larger scale production. Here's where you have 1,000 customers. And here's where you have 100,000 lower costs per unit. But if two companies merge to create this situation of larger production, 100,000, which enables them to drop the cost, say the cost up here is $100 per unit, whatever they're producing, and down here it's $10. And that is a result of a merger. Well, you know, other companies will wanna compete by doing the same. Other companies will compete, they'll see, well, these two companies merge, they got economies of scale. It costs them $10 to make this thing. It costs us $100 to make this thing. We better do something fast or we're out of business. And so this was one reason for merger waves. It's competition to achieve economies of scale. But the market failure economists, they're very good at coming up with words and language that is very loaded, very loaded terms and very biased. They call this the domino theory of mergers. The domino effect is sort of fearful. Everything is gonna collapse, dominoes. But this is what was motivating a lot of the merger waves is competition to reduce cost. But if the prevailing theory says fewer firms is a bad thing and the government comes in and breaks up this merger and forces it back to here, you're back up to, it costs $100 to produce this thing again because the market is not big enough. One of the famous chapters in the wealth of nations by Adam Smith was called the division of labor is limited by the extent of the market. And he meant that he didn't use the word economy to scale, but lower cost production was caused by the division of labor, the benefits of specialization in the division of labor. And what does he mean when he said limited by the extent of the market? Well, if you could only sell in England, your market is limited. But if you could also sell in America and all the rest of Europe, you have a much bigger market. And therefore you have a much bigger division of labor and specialization and you're able to produce at a much lower cost. That's one of the fundamental principles of economics which was abandoned by the perfect competition model when it said many firms is a requirement for competition. And so when the government comes in and breaks these firms up, it's bad for consumers because it causes higher costs and ultimately higher prices. That's been the whole history of it. And some of the judges and politicians have been quite ludicrous in their pronouncements on this. This theory, the theory of perfect competition led to the thinking in a field of industrialization that it became known as the structure, conduct, performance paradigm. Structure, conduct, performance paradigm where competition, the degree of competition is determined by market structure, how many firms are competing. And the market structure determined conduct, pricing conduct primarily. And then performance, well that has to do with how much is produced? Is it increasing or decreasing output? And of course, if it's a monopoly, it's set to decrease output and reduce consumer welfare. And so this is what was used in antitrust from the 1930s until about the 1980s when economic critiques of this really were influential and caused the antitrust regulators to back off a lot. They resuscitated their power with the Microsoft antitrust case in the 90s but for a while they did back off. But as an example of some of the nonsense, there's a, I'll mention one famous antitrust case when the government sued Alcoa, the aluminum company of America in the 1930s for supposedly monopolizing the aluminum business which they never did in terms of being a single seller. The judge at the time, the judge who ruled in a case, this is the perfect name for a judge. It was Judge Learned Hand. Learned, L-E-A-R-N-E-D, Learned Hand. If you wanna become good at law school and be a judge, change your name to something like that. It sounds, you might be on the Supreme Court someday. Learned Hand. And so when he condemned Alcoa for monopolizing the market, which it never did, it just had a good market share. Okay, here's what he said was bad. He said he condemned it for its, and I'm quoting, superior skill foresight and industry. That's a bad thing. I said, this is how they got a big market share, superior skill foresight and industry. And why was this bad? It was exclusionary. It excluded companies that did not have superior skill foresight and industry, okay? And what did that lead to? Fewer firms in the industry. Fewer firms in the industry. He condemned Alcoa for advertising his business. And it was so good at advertising and stimulating sales with advertising that it quote, efficiently supplied a demand that had evolved. So it let people know about its product and what it cost. And it was pricing below the competition. And so people who bought aluminum to manufacture things bought a lot of stuff from Alcoa. It was cheap compared to the competition. So they efficiently supplied a demand that had evolved because of their advertising. And then he also said, another bad thing they did was, Alcoa had correctly anticipated increases in consumer demand and then doubled and redoubled its capacity to fill the demand. How criminal can you get? And then they, he also said, they embraced every new opportunity with a great organization, manned with elite business personnel. That's a direct quote. And for that, and therefore I find you guilty of monopolizing the aluminum industry in America and under the antitrust laws, if you're found guilty in a case like this, the first thing they do is try to assess the damages that were done to competitors and consumers and then they triple them. It's called treble damages. So if they decide that while there's a billion dollars in damage done to competitors and the losers of the industry and consumers somehow, then you pay a $3 billion fine involved in that. And there's also prison sentences involved in some antitrust, some antitrust. And so that's the kind of thing that was the consequence, but there had to be an intellectual background behind this and the intellectual background is the change in the theory of competition and this belief that many firms is necessary for competition. It was the whole heart of that statement. Another book that I would recommend if you're really into this or some of you students want to get into it, write a paper, a big name in the 1970s and 80s was Yale Brozen and his big fat book is called Concentration, Mergers and Public Policy. And what this does, it's a survey book, surveys, literature that came about beginning in the late 1960s through the 1980s that challenged this view. And another book, I won't write it down, it's called Industrial Organization, The New Learning. And it's edited by a man named Fred Weston. And it's similar to Brozen's book. And these two books are surveys of the literature that, and the phrase the new learning is ironic because what these books did is these were sort of Chicago school economists who were pretty good at econometrics who took the old learning, the old idea, the old Austrian idea of competition is dynamic and ongoing and took a look at all these industries that were being accused of being monopolized, accused by the government of being monopolized and they showed that there weren't being monopolized, there was no monopoly there. The way you become big in business is to just be better than the competition at serving the customers. That's how you become big in business. It's not some sort of conspiracy theory involved here. But it's, and so if you want to follow up in this literature, those are two books I would recommend. I don't really have time to talk about this kind of research now. One of the things Brozen did in one of his early articles, for example, is he took a sample of industries that were accused of being monopolistic because the perfect competition view is a static view. It looks at markets at a point in time. And so they will take a look at an industry at one point in time, one year, and they will see that there's maybe a 70% market share by three companies, okay, three companies like Kellogg's General Mills and General Foods. But what Brozen did in one of his earlier articles is he got the same industries and looked at what kind of market share there was over about a 30 year period. And so yeah, if you look at one year in 1966 and his example, there'll be one industry that has a 70% market share by three companies, but he found that within 10 years, that was totally different. That the most profitable companies all tended to descend toward the median and the less profitable companies ascended up toward the median so that manufacturing in the US was actually very fluid, very competitive and there's a lot of mobility there. But if you take a snapshot view at a point in time, by definition, somebody, at any one point in time, somebody is the reigning Super Bowl champ. You know, you're gonna call them the monopoly because they have a monopoly in the trophy that you get this year. That doesn't mean they will forever be the Super Bowl champ, the same in business. At any one time, somebody's gotta be the best. You know, Microsoft eclipsed IBM at one point. You know, in fact, one of the things I do and when I teach this in classes is Google the words picture of Microsoft's founders. Some of you have laptops, you could do it right now. I'm not gonna use a laptop here, but and there's a picture of Bill Gates and his band of married men and women who founded Microsoft and they look like hippie geeks. They look like teenage hippie geeks and especially Gates. He looks like he's about 12 in the picture and it's on the web. And I tell the students, these are the people who eclipsed IBM, one of the biggest corporations, if not the biggest corporation in the world at the time is this dozen young kids, they look 10 years old, some of them in the picture with big heads and big brains, they eclipsed IBM. And so, but if you look at IBM profitability in 1970, you would think, wow, 90% of the computer market is monopoly and the government did sue IBM for monopolizing the market for 13 years. They're involved in court from 1970 to 1983. They were involved in endless litigation with the government over monopolizing the computer industry. In the meantime, Microsoft has created and totally takes market share by the truckloads away from IBM. And finally in 1983, the judge died, the judge in the case died. And so the government just said, oh, the hell with it. And they gave up. Because to resume the case, to make the new judge credible, he would have had to have gone up to speed with 13 years of litigation. And how long would that take? And in the meantime, Microsoft was just kicking their butt with selling personal computers because the famous story is the biggest, maybe the biggest blunder in the history of the computer industry, IBM executive said, who wants a personal computer? No one wants a personal computer. And they did that for years. They were selling mainframes. That was their business, the big mainframes. When I was in college, the computer, I took computer science back when the dinosaurs still roam the earth. You can still see footprints down by the lake of the dinosaur. And I used a mainframe computer. It was like about half the size of this room. And it was just a step up from the stone tablet era when you use data, like economic research, you had to type all the data points in on cards, on cardboard cards, and then put them into a card reader that read them into this gigantic thing. And that's what you did. And that's what IBM's business was. And so that was just a step up from the stone age back there. Also on mergers, I don't know if Peter Klein talked about this, but he's quite the expert on something called the Market for Corporate Control. And one of the motivation for mergers is that that create fewer firms in the industry or in terms of corporate takeovers is that if a firm is being mismanaged and is less profitable than it could be, that creates a profit opportunity for entrepreneurs who think they can take over a controlling interest in the firm and fire the existing management and do things differently and increase the profits. And of course, they will profit tremendously because the way they have to do this is one method is a proxy battle where you can buy, you can purchase, if you can purchase enough shares, you can control the board of directors of a corporation. And the board of directors can then fire the existing management and put new management in and change the way the company is run if you think it can be more profitable or by running that different, being run that different way. And it doesn't always work out that way, but that's the theory, that's the thinking. And so when you see a lot of corporate takeovers, this is what's happening. That's something, there's a whole industry of people who are takeover specialists who specialize in nothing but trying to find takeover targets. And as a result, the stockholders of the acquired firms almost always benefit because if your stock is selling at $20 a share, somebody comes up and says, I will give you $30 today, that's pretty tempting. That's a pretty tempting, pretty good return on your money. And so they buy up the shares. And of course, if they buy it up at 30, they have to do something with that company that will make the stock price go up above 30 or else they're gonna lose money. And there have been a lot of fabulously successful examples of this. And so it's basically competition for managers is what the market for corporate control is. It's managerial labor market competition. Or at least it's a forum of managerial labor market competition. And there was an old PBS special that I showed in my classes some years ago. I have to dig it up. It's PBS probably still has it. It was they had some of these famous corporate takeover raiders like a guy named T. Boone Pickens. That's a good name for a corporate raider. Corporate takeover, T. Boone Pickens, a Texas oil man. Also on one side of the table, they had people like Pickens who I met once when I was at Washington University in St. Louis. He actually funded a conference on corporate takeovers and he was there. And then on this side, they had the corporate executives whose companies had been subjected to takeovers. So you had like the Foxes over here and the chickens over here on this round table discussion. And they had a moderator who asked one of the CEOs, what would you do if Mr. Pickens here calls you up and says that your company is in play. We're waging a proxy fight. We're buying up shares. And if we get enough, we're gonna kick you out of your job. What would you do? And the corporate executive said, well, I would call a meeting of the board of directors and we would figure out everything we could do to shut down our unprofitable plants and increase our product line and increase our profits and so forth. So he gave a big long list of reasons or ways in which they would increase profits so that we could go to our shareholders and say, you don't need Mr. Pickens. We will make more money for you ourselves. And what question does that beg? Yeah, why wasn't he already doing that? That's the whole point of corporate takeovers because human beings are inclined to favor the easy life more than working your butt off day in and day out. And so unless you have the pressures of competition, you might not do that. You might not do these things that could make more money for the owners of your company, but it's the pressure of a takeover or the threat of a takeover that makes them do these things. And so there were a lot of takeovers in the 80s in America that were allowed to go through and that was generally good for the economy. But then a lot of state governments reacted by imposing laws that made takeovers more difficult in various ways. There wasn't a federal anti-takeover law, but several dozen states made it much more difficult to take over because the corporate executives for some company located in, say Atlanta, would be in like this with a state legislature and they would get the legislature to pass essentially protectionist legislation that would protect them personally from competition from other companies or takeovers. There's a famous story also in the, among those of us who study these things of Columbia Business School. They hired a takeover specialist from Wall Street to teach a course in takeovers and he came in there and he told the students, this was an MBA course, that if you can find a legitimate takeover target, I'll give you $100,000 to a student and they fired him. It was too unsavory to have students making money. So the money is supposed to come from the students to the university, not to the students. That's where the money is supposed to flow. And so anyway. So that's on also some of the final comments running out of time here on the whole issue of output restriction. You know, the standard model argues that there's a problem when corporate business restricts output. Let's see what happened to my monopoly model. There it is. From the competitive ideal. And Murray Rothbard, I would recommend reading Murray Rothbard's chapter on this. How many of you are here fans of cage fighting? These are cage fighting. It's sort of taken over boxing. And in my day, I was a Muhammad Ali fan. So I watched boxing as far as fighting goes. How often do these guys fight the cage fighters? Anybody know? Every couple of months. Well, they're obviously restricting output, aren't they? Why don't they fight every night like Brad Pitt did in that movie? Fight club, fight club. Was it fight club? Is that the name of it? Bare knuckles, they weren't sissies. They didn't put gloves on. They fought every night. They're obviously restricting output, aren't they? And so, you know, when you think about it, you know, we all restrict output. I don't lecture 20 hours a day. You know, I'm restricting output. You know, what do you do for a job? You're restricting output. You don't work 20 hours a day. I don't think, some of you seem to stay out of the bars almost 20 hours a day, but I don't know about working. And an example of the absurdity of thinking that output restriction is necessarily a bad thing. Well, one important point, by the way, that Rothbard made was that, well, even if an industry or a business did decide to reduce output for whatever reason, they don't want to work as hard. The owners of the business don't want to work as hard. What's wrong with that? It's their business. It's their property. They can do what it wants. Well, that means that the resources they would have used, workers, capital, materials, will be reallocated somewhere else. You know, the restricted use of resources by them to produce their product will be reallocated somewhere else. So there will be an expansion of output somewhere else whenever any one industry restricts output so that on net, you can't say there's been an output restriction in the whole economy just in one industry. So that's an important point to make. And if you think of the absurdity of this, the one actual case that I, example that I often give in my talks on this is, I was at a conference where there was a person from the Federal Trade Commission bragging about all the good things they were doing. And one of the brags was that they were investigating Detroit auto dealers who in the winter time were all closing down at five o'clock in the evening. So if you were in downtown Detroit in the middle of the winter and it's snowing and it's 10 degrees Fahrenheit, it would be impossible to buy a new car. And so he was explaining to this crowd of several hundred people in Washington, D.C. that they suspected this was a conspiracy to restrict output and thereby drive up the price of cars in Detroit. And I asked them the obvious question, does this mean that forced labor is a requirement for economic efficiency? Because what else are you doing if the government says you must stay open till 9 p.m.? It's forced labor, it's servitude, you're forcing them to work four more hours a day when they have voluntarily chosen, no, I don't wanna work four hours a day. And so it really is kind of absurd when you look at this way or look at it as, why don't they force the cage fighters to fight every night? Now, they're restricting their output as far as that goes. Let's see, what should I pick in the two minutes that I have left to talk about? Oh, the perfect information assumption, I didn't really mention that, other than if there was perfect information, it would make advertising unnecessary, wouldn't it? Who needs to advertise if everyone knows everything? And so that has been an additional source of mischief and that a lot of advertising has been attacked as unnecessary for economic efficiency for many, many years. And basically the final thing I'll say is that the real source of monopoly has always been understood for centuries as government. In fact, until the antitrust laws came along line in America, most of what happened with regard to the subject of monopoly in the law was based on British common law, which looked at monopoly as a government grant of monopoly. That was always the case. That was the case in Adam Smith's day. It was the case all through the 19th century and it's still the case. You can't have a monopoly in a meaningful sense in a free market because there's too much competition, especially in today's world where there's, with globalization being so prominent, somebody from anywhere can crop up and compete with you. But I'd recommend my own article, The Myth of Natural Monopoly, that's on the web, where I show that at the time, the so-called natural monopolies were monopolized by government, phone company, the water utilities, the electric utilities. There was vigorous competition everywhere. And some companies did try to form cartels, but what typically what happens is they find that it's futile. They can't form a cartel. There's always cheating. And so they run to the government and get the government to enforce the cartel arranger. The way in which, where I live in Maryland, Baltimore Gas and Electric became monopolized. I quote this in my paper that they tried to form a cartel. There's several companies that were operating and then finally it didn't work. So they went to the state legislature and made this deal. We will give you $15,000 and 15% of all profits if in return you give us a monopoly in electricity. And the politicians said, okay, good deal. So it was basically a share the loot deal between the state legislature and this one company. And that happened all across America in electricity, natural gas, water supply, cable TV, telephone and so forth. And there's nothing natural or free market about any of these. It was all they're all put into place by government regulation. Mark here says, time's up, time's up for what? Okay, for my monopoly, okay, my monopoly, my monopoly. Okay, I guess so.