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Ludwig von Mises in his book "Liberalism: In the Classical Tradition" writes that in liberal economic the monopolies are rare and have a tendency to disappear.

For an onlooker like me, however, his arguments sound not convincing, they give an impression of topics specially selected for polemics. For example, he doesn't explain the causes of the Great Depression (which is a standard argument against liberalism for his opponents).

Moreover, I would say, his style is strangely focused on examples, he seems to carefully avoid mathematical language, where chosen notations and premises give a possibility to deduce general statements from other general statements. As a result, his examples look like special cases which do not cover the whole picture. The examples that he gives look good, but a feeling appears that there are other, uncomfortable examples, which go unnoticed.

On the other hand, what happens in the real economy does not confirm his scheme well, for example (this is commonplace in the political debates in modern Russia) the "liberal reforms" of 1990-2000-ies led not to capitalist relations but directly to a feudal society with highly monopolized economical and political life.

I want to ask you if there exist theories/books/articles where the accusation against Liberalism --

Liberalism leads to monopolies

-- is discussed in detail with convincing references, examples, and conclusions?

EDIT 29.09.2018. Gentlemen (and ladies), still I would like someone to enlighten me. Where do monopolies come from? Are they a result of state intervention, or do they arise by themselves, without a public policy? Where is this all described (i.e. which reading could you recommend)? If the school of Mises died, what does the rest of the economic science say about it?

EDIT 08.07.2019. I'd like to add this question: are there any ways to deal with monopolies except the government intervention?

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    $\begingroup$ @PedroCavalcanteOliveira I would say, it's normal for questions on economics. $\endgroup$ – Sergei Akbarov Sep 19 '18 at 1:17
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    $\begingroup$ It's normal for questions on economics made by leyman $\endgroup$ – Pedro Cavalcante Sep 19 '18 at 1:24
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    $\begingroup$ Anyway, as I see it, you are asking many questions in one. You are asking about monopolies, about causes of the Great depression, about Russia, about overuse of casuistic examples vs. general conclusions... Maybe you focus on one of them, and then, after it is answered, ask the others. $\endgroup$ – MikiRaven Sep 19 '18 at 20:58
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    $\begingroup$ I think the question is well within scope of Economics SE. If anything, politics just happens to be the context in which economic agents make their budgetary/utility decisions. Despite highlighting the government-caused distortions of markets, a liberal economist's explanation of these dynamics might be more descriptive/argumentative of policy rather than politics. Based on the notion of "natural monopoly", I could advance a non-accusatory argument which renders the statement "liberalism leads to monopolies" plausible, but I am mindful that the OP asks for references and examples. $\endgroup$ – Iñaki Viggers Sep 21 '18 at 19:15
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    $\begingroup$ There is no "liberal economic theory" within economic research. Only political pundits and historians care about von Mises. $\endgroup$ – Michael Greinecker Sep 27 '18 at 18:14
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Monopoly and competition are one of the central topics in microeconomics, so there many theories on the source of monopoly, and they are not universally applicable. Government intervention is certainly one possible source of monopoly, but there are many others.

I don't think I could give a general answer that does the question justice, so I will just give links to some of the topics are related:

The general area is known as industrial organization. The classic text is Jean Tirole's "The Theory of Industrial Organization", though I think this only covers a small fraction of the topic.

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I'm the user 'softlibertarian', that answer was from an anonymous account I can't seem to recover.

In any case, the liberal economic theory (liberal in both Misesean(Austrian) and Chicago(Neoclassical) senses) is quite clear about monopolies. Here's the short, succinct (and non-technical) version:

  • Every form of action is a monopoly. I, as the person softlibertarian, possess monopoly over labour that is exclusively mine i.e. every monopoly has a scope. Tom Cruise, for instance, possesses monopoly over action movies named Mission Impossible for the action of lead actor.
  • A monopoly that is both wide in scope (the number of purposes the action serves) and narrow in "awareness" (i.e. is mysterious enough to remain proprietary without alternatives) is especially difficult to create. To sustain such a monopoly, a producer has to create something that is good enough to be loved by everyone and secretive enough to prevent alternatives from springing up.
  • The empirical evidence (historical events, if you're an Austrian) in the aforementioned book, 'Enterprise Monopoly in the US', demonstrate that monopolistic "predatory" powers of any producer are sustained and nurtured in the presence of government regulation and licensing (preventing competition from rising). Some Chicagoans in rare cases, however, seem okay with a government "anti-trust" legislature.

I'd still recommend you visit these links:

https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton

https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton

softlibertarian I was asking this having in mind applications to the economic life in Russia. What is the libertarian explanation of the events here? What "liberal reformators" of 1990-ies were doing here,

To answer your comment, @Sergei Akbarov, (forgive my ignorance of the happenings in early 90s Russia, I only barely know what happened) the libertarian explanation is that markets were crushed, central planning was adopted, which suffered from Hayek's "Knowledge problem" (markets take into account the localized knowledge and time when making decisions, a central planner, however benevolent and superior, does not have access to these valuable input, eventually leading to unwanted surpluses and deficits) ultimately leading to the collapse. That was the case in pre-Deng China, and to a milder, but still severe, pre-liberalization India (British inspired Indian Fabian Socialism is a story for another day).

was that the right strategy from the point of view of libertarians?

Of course not, libertarians emphasize a much greater (if not complete) reliance on market mechanisms to coordinate individuals' productive and consumptive capacities. Again it depends on which libertarian you ask. If you ask me, I'd recommend the "mainstream" Scott Sumner (Market Monetarist/Chicago) libertarianism which basically says enable market mechanisms for virtually everything you can think of, establish carbon(pigouvian) tax for negative externalities where private arbitration turns unjust, provide the oft-quoted Hayekian "basic needs" in the form of NIT (implemented as EITC in the United States).

If I'm allowed to get tangential and in case you're worried about monopolies, I'd refer you to the popular libertarian philospher Robert Nozick's description of a free market economy. He describes, in his book Anarchy, State and Utopia, the mechanism by which wealth forms, Wealth is formed only by peaceful individuals interacting with their belongs in a productive manner (Wilt Chamberlain argument). You are no worse off than what you were when others gained wealth, nullifying your (hypothetical) claim to injustice.

@Kitsune Cavalry, I hope this answer is satisfactory.

Disclaimer: I have not had any sort of formal economic training. Economics is simply my side interest.

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  • $\begingroup$ user20158, thank you, I'll read what you recommend. However, I suspect that there must be a more or less simple explanation of what I am worrying about. In what I already read about libertarianism (and liberalism) I don'see any mechanisms that prevent people in such a society to abuse their power in forming monopolies. People's opportunities are different, they come from the differences in many things, in particular, from the differences in their professions. This system seems to compel people to become policemen and politicians, not physicians and scientists. Is that true? $\endgroup$ – Sergei Akbarov Nov 18 '18 at 6:31
  • $\begingroup$ Two things. Realistically speaking, how often do you see a political system built on non-capitalist (capitalism to me has a very specific meaning, free markets and trading rights to your belongings) mechanism being free of corruption and power abuses? If anything, a non market based system gravitates towards abuses of power. If the Nozick's economic description wasn't placatory :), I'd remind that any monopolistic corporation is very limited in ways it can abuse you. Do you really think Walmart selling cheap stuff is the same as the government stealing 35% of your hard earned income? Continued $\endgroup$ – user20158 Nov 18 '18 at 6:43
  • $\begingroup$ Other than a few contested macroeconomic theories on role of government in boosting aggregate demand, libertarianism remains the mainstream economic theory. While almost all economies rely on state mechanisms to regulate certain aspects of economic exchanges, no major, modern economy is possible without free market mechanisms. That should be a pretty major clue that markets are the key to survival of the human race. Why do you think poverty exists in third world countries? Because of markets? It is precisely the opposite, markets are crushed in every poor country by political opportunists. $\endgroup$ – user20158 Nov 18 '18 at 6:49
  • $\begingroup$ And your question about the system compelling people to become policemen and politicians. Not only is it not possible, because libertarianism emphasizes non coercion, but also because markets unleash productive capabilities never seen before. In fact a particular strand of libertarianism, objectivism, even celebrates people being productive, happy and satisfied with themselves. $\endgroup$ – user20158 Nov 18 '18 at 6:58
  • $\begingroup$ user20158 in my opinion your reasoning is too theoretical. About poverty in the third world: I have reason to think that it comes not from some evil people who deliberately bring down the markets, but from those who, using their professional position, build economic and political monopolies, which are beneficial to bring markets into this state. And an unpleasant detail in this picture is that the construction of these monopolies is impossible without cooperation with the western countries with their liberal political systems. $\endgroup$ – Sergei Akbarov Nov 18 '18 at 7:12
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The best study I know of on the formation and sustenance of monopolies is 'Enterprise monopoly in the US' by Austrian/Chicago Economist G Warren Nutter.

The best summary of this book I have found are at these Quora answers:

https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton

https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton

(A one line summary is that monopolies tend not to be formed in an unregulated market)

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  • $\begingroup$ softlibertarian I was asking this having in mind applications to the economic life in Russia. What is the libertarian explanation of the events here? What "liberal reformators" of 1990-ies were doing here, was that the right strategy from the point of view of libertarians? $\endgroup$ – Sergei Akbarov Nov 13 '18 at 4:35
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    $\begingroup$ Hi there, it is better that people write up their own answers in their own words, rather than just link to someone else's answer, thanks $\endgroup$ – Kitsune Cavalry Nov 17 '18 at 21:03
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Sergei, the problem with Austrian economics in and of itself, just like with Keynesian economics, is that these are economic theories created a long time ago. They are currently front and center, one being applied by those in power, the other being touted by those who may or may not want to be the ones in power instead. Economic theories that do not apply to our modern world become ideology, no different than those believed by the Socialist Workers Party, the United States Communist Party if they still exist and the Libertarian Party. Having been around members of all these organizations, I found them all to be out of touch although I would say that ideally, Libertarianism makes more sense to me these days, but grabbing on to an ideology is never a good way to develop a full and healthy understanding of economics and our world today.

If there is any economist that I would tout as part of some ideological group and still be accurate with our modern times it would be the Peruvian economist Hernando De Soto, the author of The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.

The Von Mises/Austrian/Libertarian camp has not traditionally had a good answer for why capitalism failed everywhere else before De Soto came on the scene, now the Mises Institute pushes his work, but before the publishing of this book? Before 2003? Mises was definitely around before then and yet in my readings of his work, I don't see any explanation of why capitalism has failed everywhere else, but I did see a lot of why socialism had failed.

So what did De Soto teach us? He taught us that in highly dysfunctional economies, entrenched elites tolerate the informal structures, meaning the black market, working under the table, doing business in a currency that is not legal to use and so on, because these are less impactful on their wealth than formalized welfare.

I love how racist/classist people will mention that Latin-Americans are accustomed to welfare and thats why they swarm to the United States. Aside from this being a generalization, the fact is Latin-American governments, most of them anyway, do not have the huge welfare system we have here in the United States, so the comments are made by ignorant people who do not study the government and economies of other nations. In fact, in places like Colombia and Venezuela (pre-Chavez), government giving you a check for doing absolutely nothing is unheard of and the elites and government officials of those nations would scoff and laugh at the idea and possibly even follow it up with "let them eat cake".

So, as a result, an informal economy is tolerated by elites because they are sure as heck are not going to spend their resources to establish a welfare system such as we have here in the United States and they do not want an open rebellion of the disenfranchised.

Less dysfunctional societies such as ours here in the United States keep a tight rein on informal alternatives, forcing everyone but the most marginalized into the formal structure of employment or as I mentioned before, welfare.

I am giving you a long-winded answer here because I am having to cite my sources in anticipation of those that disagree demanding I provide some citations.

So lets go from De Soto, the economist I would tout more than Von Mises if I were still a libertarian and lets look at Christopher Wickhams' book, The Inheritance of Rome: Illuminating the Dark Ages 400-1000 AD, it is not a work of economics but I often find that historians get it and prefer their analysis over an idealized economist from a century ago.

Wickham explains that after the demise of the Western Roman Empire, there was still loyalty to a central authority, after all, the people were afforded rights and limited self-rule within village councils and allowed ownership of land, but these rights were extinguished by feudalism, which bound the peasantry to the nobilities' persons and estates.

I am suggesting here that Von Mises is out of touch because in the current era, the old formal structures of feudalism mentioned by Wickham have been replaced by new structures of control, divestiture and disenfranchisement that others refer to as neofeudalism.

In other words, in this new neofeudalist economy that we exist in here in the United States, we technically have a political voice, but in reality the levers of governance and financial power are in the hands of global corporations and the top 1% of households and to a lesser degree in the top 10% managerial class that serves the interests of what others have called the New Nobility or New Aristocracy: technocrats, media editors/producers, professionals, lobbyists, etcetera.

Von Mises does not have much to say on the above does he? Of course not, he was living in a different time period, but ideology infused organizations insist on grabbing on to works of smart people with theories that no longer apply to our modern world.

The ideas of Von Mises and the other individual libertarians love, Ayn Rand are ideas that can only work in a system where there is broad-based ownership of productive capital, that is, capital that generates permanent income streams. This is the necessary foundation for political power to also be similarly broadly distributed.

Not only De Soto explains how capitalism has indeed not worked in places where asymmetry of ownership and power were present, but so does Daron Acemoglu, Killian professor of economics at MIT and University of Chicago professor James A. Robinson in their book Why Nations Fail. Again, more current, more relevant economists who explain that if this asymmetry of ownership and power were present since the birth of a nation, these societies are incapable of changing the power structure. Paid lackeys glorify the facades of democracy and free markets, but everyone knows these are facades.

How is Von Mises' theory working for the disenfranchised of Russia, not very well is it?

I do not know all the details of whats going on in Russia so I will stay focused on what I do know which is the United States. We are now in an advanced form of neofeudalism which is primarily financial which have generated enormous premiums for mobile capital, monopolies and specialized expertise in software and finance, while devaluing labor's value in the fields that can be profitably offshored or mechanized with software and robotics.

This is our modern situation, Von Mises will not help you understand this, he is long gone my friend. You need to do your own research and analysis of your situation and how to remedy it.

For example, I read this study from Princeton University: https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf

which found that voters have very little power here in the United States, effectively making the United States an oligarchy.

We do not live in a capitalist economy here in the United States or anywhere else for that matter. We have a dominance of state-controlled markets which is the foundation of a neo-feudal oligarchy, I suspect Russia to be no different than this. You see when you control the state, you can protect state-enforced cartels and monopolies such as institutions of higher learning and the health industry.

Control the market and you can buy political power with the profits. I will not be getting into what a neofeudal state-market structure looks like here.

Austrian economics does not speak on the divergence of formal rights and the actual structure of wealth and power as the core characterist of neofeudalism and oligarchy, so read on, the answers you seek are elsewhere. Although I focused on the United States because its what I know, neo-liberal globalization has us tightly coupled so I do not think it is much different in Russia.

Let me guess, much like United States citizens, you retain the right to cast a vote, but your vote has little actual influence over the government's decisions. Every citizen retains the legal right to acquire productive capital, but only the top 5% own meaningful amounts of productive capital and the majority of this capital is owned by the New Nobility, the top 0.1% of Russian households?

Most of my career has been in the non-profit sector because I always wanted to work in progressive organizations that were about solving pressing social problems, I became disillusioned, libertarians convinced me its because non-profits and governments are not the answer, the private sector and capitalism is the answer. Went through that whole process which I will not get into here, but in summary, today I understand that the problem was not that its a non-profit or a government agency and they don't work because they waste money and all that other ideology spouting.

The problem is in the current power structure, earning a university degree expecting to find secure employment, representatives expecting to make real change, progressive non-profits expecting to solve pressing social problems and so on do not work.

None of the above have the power to correct the structural sources of decay.

Don't believe me, just look at the reality of the situation. College graduates like myself these days find that their diplomas have little market value except for those of select universities. Newly elected representatives find that any independence is punished by the party machinery. Idealists find they cannot change systemic roots of the problems. Everywhere, people are co-opted or corrupted by perverse incentives, sclerotic bureaucracies, self-serving insiders, crushing debt loads and all the other realities of a highly asymmetric neofeudal oligarchy.

And those that will be offended by my answer are only serving to prove that indeed there is a tremendous divergence between the experiential reality of United States neofeudal power structure and the idealized expectations of its people, which will be a wellspring of non-linear social unrest in the end by the way.

So if you must have a "libertarian" point of view I would look to the Peruvian economist Hernando De Soto, his work seems to be acceptable in the eyes of the Mises Institute, but I would also look at Daron Acemoglu and James A. Robinson.

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  • $\begingroup$ Daniel, thank you very much, that is interesting! I read the book by Acemoglu and Robinson, it is even translated now into Russian, and it is indeed a good explanation of what happens around (I would say the best one that I heard). I did not hear about De Soto, so thank you, I'll try to find his works. $\endgroup$ – Sergei Akbarov Jul 19 at 12:44
  • $\begingroup$ You also use the word "feudalism", and I find it very useful for describing the situation. I know a Russian sociologist Vladimir Shlapentoh, who wrote two books about this, one about Russia and one about the US. Do you know other useful sources on this topic? $\endgroup$ – Sergei Akbarov Jul 19 at 12:48
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    $\begingroup$ @SergeiAkbarov, I am also learning from you. I did not know about Vladimir Shlapentoh, I hope to find his works in English. As far as other useful sources, you may find value in the work of evolutionary biologist Peter Turchin, he has written many books on the rise and fall of nation-states, empires and the evolution of societies. I think one book in particular, War and Peace and War: The Rise and Fall of Empires covers some history related to Russia and surrounding region. All the best. $\endgroup$ – Daniel Jul 19 at 13:57

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