http://mises.org/humanaction/chap17sec3.asp
The praxeological method traces all phenomena back to the actions of individuals. If conditions of interpersonal exchange are such that indirect exchange facilitates the transactions, and if and as far as people realize these advantages, indirect exchange and money come into being. Historical experience shows that these conditions were and are present. How, in the absence of these conditions, people could have adopted indirect exchange and money and clung to these modes of exchanging is inconceivable.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
• Predatory pricing (temporarily and unsustainably lowering your prices until your rivals go bust) • Tying up exclusive distribution channels • Using your size to get raw materials for less than any new rivals can • Using your size to negotiate higher prices from retailers than any new rivals could.
• Tying up exclusive distribution channels
• Using your size to get raw materials for less than any new rivals can
• Using your size to negotiate higher prices from retailers than any new rivals could.
It seems to me that all these arguments relate to the scenario of a small company taking on a large competitor and, in my opinion, many place far too much emphasis on this angle of attack. Competition does not have to come from the ground up, but can often come from another large company already established in another sector that seeks to branch out. In such instances, each of the above arguments quickly evaporate (especially the first).
Additionally, what kind of regulation would the anti-market protagonists propose to guard against such monopolising "tactics" listed above? Should companies be prevented from lowering their prices to such an extent that their competitors might go out of business? Should suppliers of raw materials/products be forced to sell to all at the same price? Surely such regulation would just lead to persistantly high prices and not benefit the consumer attall. You might be able to make it easier for competitors to stay in business but it wouldn't make things any better for the consumer.
Isn't predatory pricing just a rise in demand sparked by lowered prices and the resultant rise in price sparked by higher demand?
Fried Egg: It seems to me that all these arguments relate to the scenario of a small company taking on a large competitor and, in my opinion, many place far too much emphasis on this angle of attack. Competition does not have to come from the ground up, but can often come from another large company already established in another sector that seeks to branch out. In such instances, each of the above arguments quickly evaporate (especially the first).
Fried Egg seems quite right.
One thing I see wrong:
The bandit problem/whatever. People are not perfect. The future is uncertain. Often, people choose inappropriate means to arrive at their ends. We do not live in a Groundhog Day world, where we can replay that senario, or a single day, over and over to perfection.
These conditions are basic truths of this world, self-evident.
However, to point out these, and then say that your system is better, is, as Knight_of_BAAWA said, the nirvana fallacy.
Also, here is what a free market is: a ban on <EMPHESIS>agressive</EMPHESIS> coercion. What about the freedom that comes with a free market?
Schools are labour camps.
Looking at "capitalism" page 376 it syas "In order for people to be able to succeed in the automobile business with such limited capitals, automobiles would have to be produced without the aid of substantial machinery or the use of such things as moving assembly lines.... As a result they would have to be produced at extremely high cost,".
I agree completely. The idea of rigging the markets such that just about anybody can join the motor industry would be a disaster.... but that is not what I am advocating in my essay. Note that I have a paragraph where I state that there is such a thing as too much "exploration". In a market sector where the goods require large start up costs (in order to make the goods efficiently) there is an upper limit on the number of companies that could simultaneously afford such costs and still be efficient and make a profit. Call this number N. Now my point is that having market sectors in which the number of companies is much less than N (for that sector) is sub-optimal because we are not maximizing choice (or in terms of the bandits, we are performing sub-optimal "exploration"). Imagine a sector in which 10 large mature companies co-exist and compete with each other. Now, over the years the fortunes of the companies will wax and wane for a variety of reasons, many to do with how clever and hard working they are, but also plenty of things to do with luck. Thinks like theft, fire, fraud, political turmoil, natural disasters, either with the companies directly or indirectly via suppliers/distributors. Over time some of these 10 companies may be hit by unlucky events and go bust or indeed they may simply have some new bad management and go deservedly bust or perhaps be bought by their rivals. You could easily end up with only two or three super-large companies in the sector. I would not then claim that these companies become super-inefficient, after all they are still competing against each other, but I would suggest that the companies would perform marginally less well than with a total of 10 competitors. What I would propose is that occasionally, if market size/capital costs ratio is sufficiently large, then the largest companies in that market could be forced to divide. Yes there is a downside (and some types of company may not reasonably be splitable), I fully acknowledge that. But the upside in terms of greater "exploration" could outweigh those.
The praxeological method
It's being used as an adjective here, i.e. the method pertaining to that area of study. It'd be redundant to use it this way if Mises thought praxeology were the method. He doesn't. I agree that it isn't.
To darkness I condemn you...
Why would it be a disaster to "rig the market" so that anybody could enter the motor industry? Who should decide who is and is not able to enter the industry? The government? If someone thinks they can compete in an industry, and they can get the capital to do it (capital from people who willingly give it and bear the risk), what's wrong? Sure, they may be making a mistake, but their mistake would be realized very quickly in terms of losses and they would go out of business thus minimizing the misallocation of resources. Government doesn't operate on the market and doesn't receive the feedback inherent in the profit/loss system. Government is the organization that would assuredly screw up the industry, not the free market.
There is no such thing as a certain number of companies that would make an industry most efficient. Such a concept is ridiculous. If a single company is so efficient that no other company can compete, then N=1, but the second the company doesn't adapt to the consumer's desires or fails to be efficient enough to keep out potential competitors they will begin to lose market share.
There is no set number of competitors necessary to make an industry function efficiently. All that needs to exist is the absence of legal barrier to entry into the market. Splitting up a company forcibly is both immoral and economically obtuse.
I think the word praxeology does double duty as both object of study, and method of study.. just as you might employ science or math, you might employ praxeology. the method pertaining to the study of economics is surely to investigate human action, praxeology is a fine go to word for this.
not only do we have murray rothabrds writings, George Selgin wrote
Mises's particular elaboration ofthe Austrianmethod, which he called "praxeology,,,4 is still regardedby many Austrian economists as the method of the Austrian school.5 and his footnote for point 4 reads:
4Professor Lachmann also refers to his own method as praxeology. In this study, the term praxeology is used in the narrower sense employed by Mises and Rothbard as well as by Kirzner in The Economic Point of View (Kansas City, Kans.: Sheed and Ward, 1976).
mickanomics:having market sectors in which the number of companies is much less than N (for that sector) is sub-optimal because we are not maximizing choice.
I think I see where the flaw in your economic theory is, and it's way back toward the beginning.
You're taking the collectivist approach and assuming that 'society' owns all resources and economics is 'the science of efficient allocation of society's resources.' Am I right?
That approach sows the seeds for some very poisonous conclusions.
"We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude." - Thomas Jefferson
nirgrahamUK, Mises didn't conceive of praxeology as a method. For Mises a priorism is the method of Austrian economics (and it should be the method of economic science as a whole), not praxeology. The latter is the subject matter and the former is the method. It's similar to when people call Austrian unscientific because Austrians don't adhere to the alleged "scientific method", they confuse science (a systematized body of knowledge) with the "scientific method" (positivism). Now, you're correct in appealing to Rothbard as an authority on this one, but that doesn't mean he himself was correct.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
and selgin and lachmann
I am not denying that praxeology is the science of human action. it surely is. but it is also a word suitable for use as a descriptor for the misesian apriori method of investigating economics.
GilesStratton:For Mises a priorism is the method of Austrian economics
You're not wrong, but you are incomplete.
Not anyone who uses a priorism is an Austrian. Austrians economics use a priorism related to human action; or rather all of our a prioris originate from the "general theory of human action called, praxeology."
The methodology of Austrian economics is praxeological a prioris.
Romantivist: You're taking the collectivist approach and assuming that 'society' owns all resources and economics is 'the science of efficient allocation of society's resources.' Am I right?
I think you're exaggerating my position. If there was a scale of the degree-of-market-intervention that ran from zero (Austrians) to 100 (communists) then my position is probably about 5. I'm hardly Carl Marx!
mickanomics
I read Mises somewhere (I can't remember where now) when he said that the more extensive the division of labour becomes, the more specialised each branch of production becomes, the larger the market share for their product they require in order to remain viable. Hence we would expect to see the number of competitors within each particular branch of production to become diminished as the number of branches increased. This tendency towards monopoly within each specific branch does not indicate economic innefficiency or imply that a monopoly price will emerge. This is because competition comes from other branches of production. It would not be possible to maintain a number of competitors within each branch of production as the number of brances increased. Any institutional interference aimed at maintaining comeptition within each branch of production would simply serve to limit the division of labour by limiting the number of branches.
Since most economists are of agreement that the more developed the division of labour becomes, the more productive the economy is. Therefore we should not seek to limit the division of labour and this is exactly what anti-trust legislation does when they break up companies to introduce more competition within particular branches of production. And this is (one reason) why anti-trust legislation is counter-productive.
Think about it like this: The more companies competing within a particular branch of production, the more captial is locked into that particular branch than might otherwise have been the case. There is then less capital for allocation to other branches. Naturally then a balance has to be found in the allocation of capital amoung the various branches of production. The more branches of production there are, the more one must economise the use of capital within each particular branch. The markets regulate this balance by directing capital investment towards higher profits. I do not see any reason to believe that regulators/planners can better manage the allocation of capital.
Am I right in thinking that a summary of the dispute between us is that you (this forum) are saying
* there are never any interventions ever that could help a market
where as I am saying
* there are some interventions sometimes that could help a market
Note that I am not saying
* there are lots of interventions that should be applied and they are easy to design.
far from it.
I would personally be reluctant to say never should an intervention be made. But I would be extremely wary. It is so easy to view things too myopically, not to see the bigger picture and to cause unintended consequences that make your intervention counter-productive.
I would imagine though that most people here would take the view that there is no objective standard by which we can judge the performance of the market to identify where it falls short. In otherwords, it is only market outcomes that reveal what the consumers want, that we cannot know what consumers want outside of what the markets reveal to us. Therefore what basis can there ever be for making an intervention?
Note, it is important to emphasise that Austrians reject intervention not because they believe markets are always perfect and efficient, but as a consequence of their methodological subjectivism. Any objective standard by which we might judge market outcomes is essentially arbitary.
Fried Egg: I would personally be reluctant to say never should an intervention be made.
I would personally be reluctant to say never should an intervention be made.
Careful now! You could get branded a communist for saying things like that on this forum!
Fried Egg: But I would be extremely wary. It is so easy to view things too myopically, not to see the bigger picture and to cause unintended consequences that make your intervention counter-productive.
But I would be extremely wary. It is so easy to view things too myopically, not to see the bigger picture and to cause unintended consequences that make your intervention counter-productive.
So far we are in complete agreement.
Fried Egg: I would imagine though that most people here would take the view that there is no objective standard by which we can judge the performance of the market to identify where it falls short. In other words, it is only market outcomes that reveal what the consumers want, that we cannot know what consumers want outside of what the markets reveal to us. Therefore what basis can there ever be for making an intervention?
I would imagine though that most people here would take the view that there is no objective standard by which we can judge the performance of the market to identify where it falls short. In other words, it is only market outcomes that reveal what the consumers want, that we cannot know what consumers want outside of what the markets reveal to us. Therefore what basis can there ever be for making an intervention?
Well I don't have a magic formula for it. But there could be many clues. Say for example a market sector in a particular country is overwhelmingly dominated by a single company. Say that consumer groups are regularly and increasingly flooded with complaints about their service. Say that almost all the potential suppliers and distributors have signed long term exclusivity deals, say that the same market sector in other countries have multiple competing companies and appear to get the same service better and cheaper... now how about a bit of intervention?
Well I don't have a magic formula for it. But there could be many clues. Say for example a market sector in a particular country is overwhelmingly dominated by a single company.
Did you read my post above? The lack of competition within a particular branch of production is not in itself an indicator of an innefficient or failing market.
Say that consumer groups are regularly and increasingly flooded with complaints about their service.
This is an indicator, perhaps, that the markets aren't perfect. But not an indicator that more competitors within that particular branch of production would make the markets overall more efficient.
Say that almost all the potential suppliers and distributors have signed long term exclusivity deals, say that the same market sector in other countries have multiple competing companies and appear to get the same service better and cheaper...
If our markets have extended the division of labour more extensively than in other countries, then we would expect to see less competition within that particular branch of of production so we would be wrong to conclude that our market is failing and that intervention was necessary.
Fried Egg: If our markets have extended the division of labour more extensively than in other countries, then we would expect to see less competition within that particular branch of of production so we would be wrong to conclude that our market is failing and that intervention was necessary.
Each of the indicators I pointed to are not conclusive. Each may have an alternative explanation - but if you have lots of the indicators all at the same time, then I would want my government to look in to it carefully.
mickanomics:Each of the indicators I pointed to are not conclusive. Each may have an alternative explanation - but if you have lots of the indicators all at the same time, then I would want my government to look in to it carefully.
I'm not sure what it is exactly that they would look at that would tell them what to change that would make the markets more efficient.
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