Compulsory cartels are a forcing of all producers in an industry into one organization, or virtual organization. Instead of being directly barred from an industry, firms are forced to obey governmentally imposed quotas of maximum output. Such cartels invariably go hand in hand with a governmentally imposed program of minimum price control. When the government comes to realize that minimum price control by itself will lead to unsold surpluses and distress in the industry, it imposes quota restrictions on the output of producers. Not only does this action injure consumers by restricting production and lowering output; the output must also be produced by certain State-designated producers. Regardless of how the quotas are arrived at, they are arbitrary; and as time passes, they more and more distort the production structure that attempts to adjust to consumer demands. Efficient newcomers are prevented from serving consumers, and inefficient firms are preserved because they are exempted by their old quotas from the necessity of meeting superior competition. Compulsory cartels furnish a haven in which the inefficient firms prosper at the expense of the efficient firms and of the consumers.

Little attention has been paid to licenses; yet they constitute one of the most important (and steadily growing) monopolistic impositions in the current American economy. Licenses deliberately restrict the supply of labor and of firms in the licensed occupations. Various rules and requirements are imposed for work in the occupation or for entry into a certain line of business. Those who cannot qualify under the rules are prevented from entry. Further, those who cannot meet the price of the license are barred from entry. Heavy license fees place great obstacles in the way of competitors with little initial capital. Some licenses such as those required in the liquor and taxicab businesses in some states impose an absolute limit on the number of firms in the business. These licenses are negotiable, so that any new firm must buy from an older firm that wants to go out of business. Rigidity, inefficiency, and lack of adaptability to changing consumer desires are all evident in this arrangement. The market in license rights also demonstrates the burden that licenses place upon new entrants. Professor Machlup points out that the governmental administration of licensing is almost invariably in the hands of members of the trade, and he cogently likens the arrangements to the “self-governing” guilds of the Middle Ages.14

Certificates of convenience and necessity are required of firms in industries—such as railroads, airlines, etc.—regulated by governmental commissions. These act as licenses but are generally far more difficult to obtain. This system excludes would-be entrants from a field, granting a monopolistic privilege to the firms remaining; furthermore, it subjects them to the detailed orders of the commission. Since these orders countermand those of the free market, they invariably result in imposed inefficiency and injury to the consumers.15

Licenses to workers, as distinct from businesses, differ from most other monopolistic grants, which may confer a monopoly price. For the former license always confers a restrictionist price. Unions gain restrictionist wage rates by restricting the labor supply in an occupation. Here, once again, the same conditions prevail: other factors are forcibly excluded, and, since the monopolist does not own these excluded factors, he is not losing any revenue. Since a license always restricts entry into a field, it thereby always lowers supply and raises prices, or wage rates. The reason that a monopolistic grant to a business does not always raise prices, is that businesses can always expand or contract their production at will. Licensing of grocers does not necessarily reduce total supply, because it does not preclude the indefinite enlargement of the licensed grocery firms, which can take up the slack created by the exclusion of would-be competitors. But, aside from hours worked, restriction of entry into a labor market must always reduce the total supply of that labor. Hence, licenses or other monopolistic grants to businesses may or may not confer a monopoly price—depending on the elasticity of the demand curve; whereas licenses to laborers always confer a higher, restrictionist price on the licensees.

• 14Ibid. On licenses, see also Thomas H. Barber, Where We Are At (New York: Charles Scribners’ Sons, 1950), pp. 89–93; George J. Stigler, The Theory of Price (New York: Macmillan & Co., 1946), p. 212; and Walter Gellhorn, Individual Freedom and Governmental Restraints (Baton Rouge: Louisiana State University Press, 1956), pp. 105–51, 194–210.
• 15A glaring example of a Commission’s role in banning efficient competitors from an industry is the Civil Aeronautics Board decision to close up Trans-American Airlines, despite a perfect safety record. Trans-American had pioneered in rate reductions for airline service. On the CAB, see, Sam Peltzman, “CAB: Freedom from Competition,” New Individualist Review, Spring, 1963, pp. 16–23.

One of the favorite arguments for licensing laws and other types of quality standards is that governments must “protect” consumers by insuring that workers and businesses sell goods and services of the highest quality. The answer, of course, is that “quality” is a highly elastic and relative term and is decided by the consumers in their free actions in the marketplace. The consumers decide according to their own tastes and interests, and particularly according to the price they wish to pay for the service. It may very well be, for example, that a certain number of years’ attendance at a certain type of school turns out the best quality of doctors (although it is difficult to see why the government must guard the public from unlicensed cold-cream demonstrators or from plumbers without a college degree or with less than ten years’ experience). But by prohibiting the practice of medicine by people who do not meet these requirements, the government is injuring consumers who would buy the services of the outlawed competitors, is protecting “qualified” but less value-productive doctors from outside competition, and also grants restrictionist prices to the remaining doc-tors.16 Consumers are prevented from choosing lower-quality treatment of minor ills, in exchange for a lower price, and are also prevented from patronizing doctors who have a different theory of medicine from that sanctioned by the state-approved medical schools.

How much these requirements are designed to “protect” the health of the public, and how much to restrict competition, may be gauged from the fact that giving medical advice free without a license is rarely a legal offense. Only the sale of medical advice requires a license. Since someone may be injured as much, if not more, by free medical advice than by purchased advice, the major purpose of the regulation is clearly to restrict competition rather than to safeguard the public.17

Other quality standards in production have an even more injurious effect. They impose governmental definitions of products and require businesses to hew to the specifications laid down by these definitions. Thus, the government defines “bread” as being of a certain composition. This is supposed to be a safeguard against “adulteration,” but in fact it prohibits improvement. If the government defines a product in a certain way, it prohibits change. A change, to be accepted by consumers, has to be an improvement, either absolutely or in the form of a lower price. Yet it may take a long time, if not forever, to persuade the government bureaucracy to change the requirements. In the meantime, competition is injured, and technological improvements are blocked.18 “Quality” standards, by shifting decisions about quality from the consumers to arbitrary government boards, impose rigidities and monopolization on the economic system.

In the free economy, there would be ample means to obtain redress for direct injuries or fraudulent “adulteration.” No system of government “standards” or army of administrative inspectors is necessary. If a man is sold adulterated food, then clearly the seller has committed fraud, violating his contract to sell the food. Thus, if A sells B breakfast food, and it turns out to be straw, A has committed an illegal act of fraud by telling B he is selling him food, while actually selling straw. This is punishable in the courts under “libertarian law,” i.e., the legal code of the free society that would prohibit all invasions of persons and property. The loss of the product and the price, plus suitable damages (paid to the victim, not to the State), would be included in the punishment of fraud. No administrator is needed to prevent nonfraudulent sales; if a man simply sells what he calls “bread,” it must meet the common definition of bread held by consumers, and not some arbitrary specification. However, if he specifies the composition on the loaf, he is liable for prosecution if he is lying. It must be emphasized that the crime is not lying per se, which is a moral problem not under the province of a free-market defense agency, but breaching a contract—taking someone else’s property under false pretenses and therefore being guilty of fraud. If, on the other hand, the adulterated product injures the health of the buyer (such as by an inserted poison), the seller is further liable for prosecution for injuring and assaulting the person of the buyer.19

Another type of quality control is the alleged “protection” of investors. SEC regulations force new companies selling stock, for example, to comply with certain rules, issue brochures, etc. The net effect is to hamper new and especially small firms and restrict them in acquiring capital, thereby conferring a monopolistic privilege upon existing firms. Investors are prohibited from investing in particularly risky enterprises. SEC regulations, “blue-sky laws,” etc., thereby restrict the entry of new firms and prevent investment in risky but possibly successful ventures. Once again, efficiency in business and service to the consumer are hampered.20

Safety codes are another common type of quality standard. They prescribe the details of production and outlaw differences. The free-market method of dealing, say, with the collapse of a building killing several persons, is to send the owner of the building to jail for manslaughter. But the free market can countenance no arbitrary “safety” code promulgated in advance of any crime. The current system does not treat the building owner as a virtual murderer should a collapse occur; instead, he merely pays a sum of monetary damages. In that way, invasion of person goes relatively unpunished and undeterred. On the other hand, administrative codes proliferate, and their general effect is to prevent major improvements in the building industry and thus to confer monopolistic privileges on existing builders, as contrasted with potentially innovating competitors.21 Evasion of safety codes through bribery then permits the actual aggressor (the builder whose property injures someone) to continue unpunished and go scot free.

It might be objected that free-market defense agencies must wait until after people are injured to punish, rather than prevent, crime. It is true that on the free market only overt acts can be punished. There is no attempt by anyone to tyrannize over anyone else on the ground that some future crime might possibly be prevented thereby. On the “prevention” theory, any sort of invasion of personal freedom can be, and in fact must be, justified. It is certainly a ludicrous procedure to attempt to “prevent” a few future invasions by committing permanent invasions against everyone.22

Safety regulations are also imposed on labor contracts. Workers and employers are prevented from agreeing on terms of hire unless certain governmental rules are obeyed. The result is a loss imposed on workers and employers, who are denied their freedom to contract, and who must turn to other, less remunerative employments. Factors are therefore distorted and misallocated in relation to both the maximum satisfaction of the consumers and maximum return to factors. Industry is rendered less productive and flexible.

Another use of “safety regulations” is to prevent geographic competition, i.e., to keep consumers from buying goods from efficient producers located in other geographical areas. Analytically, there is little distinction between competition in general and in location, since location is simply one of the many advantages or disadvantages that competing firms possess. Thus, state governments have organized compulsory milk cartels, which set minimum prices and restrict output, and absolute embargoes are levied on out-of-state milk imports, under the guise of “safety.” The effect, of course, is to cut off competition and permit monopoly pricing. Furthermore, safety requirements that go far beyond those imposed on local firms are often exacted on out-of-state products.23

• 16It is hardly remarkable that we hear continual complaints about a “shortage” of doctors and teachers, but rarely hear complaints of shortages in unlicensed occupations. On licensing in medicine, see Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1963), pp. 149–60; Reuben A. Kessel, “Price Discrimination in Medicine,” Journal of Law and Economics, October, 1958, pp. 20–53.
• 17For an excellent analysis of the workings of compulsory quality standards in a concrete case, see P.T. Bauer, West African Trade (Cambridge: Cambridge University Press, 1954), pp. 365–75.
• 18For case studies of the effects of such “quality” standards, see George J. Alexander, Honesty and Competition (Syracuse: Syracuse University Press, 1967).
• 19On adulteration and fraud, see the definitive discussion by Wordsworth Donisthorpe, Law in a Free State (London: Macmillan & Co., 1895), pp. 132–58.
• 20Some people who generally adhere to the free market support the SEC and similar regulations on the ground that they “raise the moral tone of competition.” Certainly they restrict competition, but they cannot be said to “raise the moral tone” until morality is successfully defined. How can morality in production be defined except as efficient service to the consumer? And how can anyone be “moral” if he is prevented by force from acting otherwise?
• 21The building industry is so constituted that many laborers are quasi-independent entrepreneurs. Safety codes therefore compound the restrictionism of building unions.
• 22We might add here that on the purely free market even the “clear and present danger” criterion would be far too lax and subjective a definition for a punishable deed.
• 23See Stigler, Theory of Price, p. 211.

Tariffs and various forms of import quotas prohibit, partially or totally, geographical competition for various products. Domestic firms are granted a quasi monopoly and, generally, a monopoly price. Tariffs injure the consumers within the “protected” area, who are prevented from purchasing from more efficient competitors at a lower price. They also injure the more efficient foreign firms and the consumers of all areas, who are deprived of the advantages of geographic specialization. In a free market, the best resources will tend to be allocated to their most value-productive locations. Blocking interregional trade will force factors to obtain lower remuneration at less efficient and less value-productive tasks.

Economists have devoted a great deal of attention to the “theory of international trade”—attention far beyond its analytic importance. For, on the free market, there would be no separate theory of “international trade” at all—and the free market is the locus of the fundamental analytic problems. Analysis of interventionary situations consists simply in comparing their effects to what would have occurred on the free market. “Nations” may be important politically and culturally, but economically they appear only as a consequence of government intervention, either in the form of tariffs or other barriers to geographic trade, or as some form of monetary intervention.24

Tariffs have inspired a profusion of economic speculation and argument. The arguments for tariffs have one thing in common: they all attempt to prove that the consumers of the protected area are not exploited by the tariff. These attempts are all in vain. There are many arguments. Typical are worries about the continuance of an “unfavorable balance of trade.” But every individual decides on his purchases and therefore determines whether his balance should be “favorable” or “unfavorable”; “unfavorable” is a misleading term because any purchase is the action most favorable for the individual at the time. The same is therefore true for the consolidated balance of a region or a country. There can be no “unfavorable” balance of trade from a region unless the traders so will it, either by selling their gold reserve, or by borrowing from others (the loans being voluntarily granted by creditors).

The absurdity of the protariff arguments can be seen when we carry the idea of a tariff to its logical conclusion—let us say, the case of two individuals, Jones and Smith. This is a valid use of the reductio ad absurdum because the same qualitative effects take place when a tariff is levied on a whole nation as when it is levied on one or two people; the difference is merely one of degree.25 Suppose that Jones has a farm, “Jones’ Acres,” and Smith works for him. Having become steeped in protariff ideas, Jones exhorts Smith to “buy Jones’ Acres.” “Keep the money in Jones’ Acres,” “don’t be exploited by the flood of products from the cheap labor of foreigners outside Jones’ Acres,” and similar maxims become the watchword of the two men. To make sure that their aim is accomplished, Jones levies a 1,000-percent tariff on the imports of all goods and services from “abroad,” i.e., from outside the farm. As a result, Jones and Smith see their leisure, or “problems of unemployment,” disappear as they work from dawn to dusk trying to eke out the production of all the goods they desire. Many they cannot raise at all; others they can, given centuries of effort. It is true that they reap the promise of the protectionists: “self-sufficiency,” although the “sufficiency” is bare subsistence instead of a comfortable standard of living. Money is “kept at home,” and they can pay each other very high nominal wages and prices, but the men find that the real value of their wages, in terms of goods, plummets drastically.

Truly we are now back in the situation of the isolated or barter economies of Crusoe and Friday. And that is effectively what the tariff principle amounts to. This principle is an attack on the market, and its logical goal is the self-sufficiency of individual producers; it is a goal that, if realized, would spell poverty for all, and death for most, of the present world population. It would be a regression from civilization to barbarism. A mild tariff over a wider area is perhaps only a push in that direction, but it is a push, and the arguments used to justify the tariff apply equally well to a return to the “self-sufficiency” of the jungle.26 ,27

One of the keenest parts of Henry George’s analysis of the protective tariff is his discussion of the term “protection”:

Protection implies prevention. ... What is it that protection by tariff prevents? It is trade. ... But trade, from which “protection” essays to preserve and defend us, is not, like flood, earthquake, or tornado, something that comes without human agency. Trade implies human action. There can be no need of preserving from or defending against trade, unless there are men who want to trade and try to trade. Who, then, are the men against whose efforts to trade “protection” preserves and defends us? ... the desire of one party, however strong it may be, cannot of itself bring about trade. To every trade there must be two parties who actually desire to trade, and whose actions are reciprocal. No one can buy unless he finds someone willing to sell; and no one can sell unless there is some other one willing to buy. If Americans did not want to buy foreign goods, foreign goods could not be sold here even if there were no tariff. The efficient cause of the trade which our tariff aims to prevent is the desire of Americans to buy foreign goods, not the desire of foreign producers to sell them. ... It is not from foreigners that protection preserves and defends us; it is from ourselves.28

Ironically, the long-run exploitative possibilities of the protective tariff are far less than those that arise from other forms of monopoly grant. For only firms within an area are protected; yet anyone is permitted to establish a firm there—even foreigners. As a result, other firms, from within and without the area, will flock into the protected industry and the protected area, until finally the monopoly gain disappears, although misallocation of production and injury to consumers remain. In the long run, therefore, a tariff per se does not establish a lasting benefit even for the immediate beneficiaries.

Many writers and economists, otherwise in favor of free trade, have conceded the validity of the “infant industry argument” for a protective tariff. Few free-traders, in fact, have challenged the argument beyond warning that the tariff might be continued beyond the stage of “infancy” of the industry. This reply in effect concedes the validity of the “infant industry” argument. Aside from the utterly false and misleading biological analogy, which compares a newly established industry to a helpless new-born baby who needs protection, the substance of the argument has been stated by Taussig:

The argument is that while the price of the protected article is temporarily raised by the duty, eventually it is lowered. Competition sets in ... and brings a lower price in the end. ... This reduction in domestic price comes only with the lapse of time. At the outset the domestic producer has difficulties, and cannot meet the foreign competition. In the end he learns how to produce to best advantage, and then can bring the article to market as cheaply as the foreigner, even more cheaply.29

Thus, older competitors are alleged to possess historically acquired skill and capital that enable them to outcompete any new rivals. Wise protection of the government granted to the new firms, therefore, will, in the long run, promote rather than hinder competition.

The infant industry argument reverses the true conclusion from a correct premise. The fact that capital has already been sunk in older locations does, it is true, give the older firms an advantage, even if today, in the light of present knowledge and consumer wants, the investments would have been made in the new locations. But the point is that we must always work with a given situation, with the capital handed down to us by the investment of our ancestors. The fact that our ancestors made mistakes—from the point of view of our present superior knowledge—is unfortunate, but we must always do the best with what we have. We do not and never can begin investing from scratch; indeed, if we did, we should be in the situation of Robinson Crusoe, facing land again with our bare hands and no inherited equipment. Therefore, we must make use of the advantages given us by the sunk capital of the past. To subsidize new plants would be to injure consumers by depriving them of the advantages of historically given capital.

In fact, if long-run prospects in the new industry are so promising, why does not private enterprise, ever on the lookout for a profitable investment opportunity, enter the new field? Only because entrepreneurs realize that such investment would be uneconomic, i.e., it would waste capital, land, and labor that could otherwise be invested to satisfy more urgent desires of the consumers. As Mises says:

The truth is that the establishment of an infant industry is advantageous from the economic point of view only if the superiority of the new location is so momentous that it outweighs the disadvantages resulting from abandonment of nonconvertible and nontransferable capital goods invested in the older established plants. If this is the case, the new plants will be able to compete successfully with the old ones without any aid given by the government. If it is not the case, the protection granted to them is wasteful, even if it is only temporary and enables the new industry to hold its own at a later period. The tariff amounts virtually to a subsidy which the consumers are forced to pay as a compensation for the employment of scarce factors of production for the replacement of still utilizable capital goods to be scrapped and the withholding of these scarce factors from other employments in which they could render services valued higher by the consumers. ... In the absence of tariffs the migration of industries [to better locations] is postponed until the capital goods invested in the old plants are worn out or become obsolete by technological improvements which are so momentous as to necessitate their replacement by new equipment.30

Logically, the infant industry argument must be applied to interlocal and interregional trade as well as international. Failure to realize this is one of the reasons for the persistence of the argument. Logically extended, in fact, the argument would have to imply that it is impossible for any new firm to exist and grow against the competition of older firms, wherever their locations. New firms, after all, have their own peculiar advantage to offset that of existing sunken capital possessed by the old firms. New firms can begin afresh with the latest and most productive equipment as well as on the best locations. The advantages and disadvantages of a new firm must be weighed against each other by entrepreneurs in each case, to discover the most profitable, and therefore the most serviceable, course.31

• 24See Henry George, Protection or Free Trade (New York: Robert Schalkenbach Foundation, 1946), pp. 37–44. On free trade and protection, see Leland B. Yeager and David Tuerck, Trade Policy and The Price System (Scranton, Pa.: International Textbook Co., 1966).
• 25The impact of a tariff is clearly greater the smaller the geographic area of traders it covers. A tariff “protecting” the whole world would be meaningless, at least until other planets are brought within our trading market.
• 26The tariff advocates will not wish to push the argument to this length, since all parties clearly lose so drastically. With a milder tariff, on the other hand, the tariff-protected “oligopolists” may gain more (in the short run) from exploiting the domestic consumers than they lose from being consumers themselves.
• 27Our two-man example is similar to the illustration used in the keen critique of protection by Frederic Bastiat. See Bastiat, Economic Sophisms (Princeton, N.J.: D. Van Nostrand, 1964), pp. 242–50, 202–09. Also see the “Chinese Tale,” and the famous “Candlemakers’ Petition,” ibid., pp. 182–86, 56–60. Also see the critique of the tariff in George, Protection or Free Trade, pp. 51–54; and Arthur Latham Perry, Political Economy (New York: Charles Scribners’ Sons, 1892), pp. 509 ff.
• 28George, Protection or Free Trade, pp. 45–46. Also on free trade and protection, see C.F. Bastable, The Theory of International Trade (2nd ed.; London: Macmillan & Co., 1897), pp. 128–56; and Perry, Political Economy, pp. 461–533.
• 29F.W. Taussig, Principles of Economics (2nd ed.; New York: Macmillan & Co., 1916), p. 527.
• 30Mises, Human Action, p. 506.
• 31See also W.M. Curtiss, The Tariff Idea (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1953), pp. 50–52.

Laborers may also ask for geographical grants of oligopoly in the form of immigration restrictions. In the free market the inexorable trend is to equalize wage rates for the same value-productive work all over the earth. This trend is dependent on two modes of adjustment: businesses flocking from high-wage to low-wage areas, and workers flowing from low-wage to high-wage areas. Immigration restrictions are an attempt to gain restrictionist wage rates for the inhabitants of an area. They constitute a restriction rather than monopoly because (a) in the labor force, each worker owns himself, and therefore the restrictionists have no control over the whole of the supply of labor; and (b) the supply of labor is large in relation to the possible variability in the hours of an individual worker, i.e., a worker cannot, like a monopolist, take advantage of the restriction by increasing his output to take up the slack, and hence obtaining a higher price is not determined by the elasticity of the demand curve. A higher price is obtained in any case by the restriction of the supply of labor. There is a connexity throughout the entire labor market; labor markets are linked with each other in different occupations, and the general wage rate (in contrast to the rate in specific industries) is determined by the total supply of all labor, as compared with the various demand curves for different types of labor in different industries. A reduced total supply of labor in an area will thus tend to shift all the various supply curves for individual labor factors to the left, thus increasing wage rates all around.

Immigration restrictions, therefore, may earn restrictionist wage rates for all people in the restricted area, although clearly the greatest relative gainers will be those who would have directly competed in the labor market with the potential immigrants. They gain at the expense of the excluded people, who are forced to accept lower-paying jobs at home.

Obviously, not every geographic area will gain by immigration restrictions—only a high-wage area. Those in relatively low-wage areas rarely have to worry about immigration: there the pressure is to emigrate.32 The high-wage areas won their position through a greater investment of capital per head than the other areas; and now the workers in that area try to resist the lowering of wage rates that would stem from an influx of workers from abroad.

Immigration barriers confer gains at the expense of foreign workers. Few residents of the area trouble themselves about that.33 They raise other problems, however. The process of equalizing wage rates, though hobbled, will continue in the form of an export of capital investment to foreign, low-wage countries. Insistence on high wage rates at home creates more and more incentive for domestic capitalists to invest abroad. In the end, the equalization process will be effected anyway, except that the location of resources will be completely distorted. To o many workers and too much capital will be stationed abroad, and too little at home, in relation to the satisfaction of the world’s consumers. Secondly, the domestic citizens may very well lose more from immigration barriers as consumers than they gain as workers. For immigration barriers (a) impose shackles on the international division of labor, the most efficient location of production and population, etc., and (b) the population in the home country may well be below the “optimum” population for the home area. An inflow of population might well stimulate greater mass production and specialization and thereby raise the real income per capita. In the long run, of course, the equalization would still take place, but perhaps at a higher level, especially if the poorer countries were “overpopulated” in comparison with their optimum. In other words, the high-wage country may have a population below the optimum real income per head, and the low-wage country may have excessive population over the optimum. In that case, both countries would enjoy increased real wage rates from the migration, although the low-wage country would gain more.

It is fashionable to speak of the “overpopulation” of some countries, such as China and India, and to assert that the Malthusian terrors of population pressing on the food supply are coming true in these areas. This is fallacious thinking, derived from focusing on “countries” instead of the world market as a whole. It is fallacious to say that there is overpopulation in some parts of the market and not in others. The theory of “over-” or “under-population (in relation to an arbitrary maximum of real income per person) applies properly to the market as a whole. If parts of the market are “under-” and parts “over” populated, the problem stems, not from human reproduction or human industry, but from artificial governmental barriers to migration. India is “overpopulated” only because its citizens will not move abroad or because other governments will not admit them. If the former, then, the Indians are making a voluntary choice: to accept lower money wages in return for the great psychic gain of living in India. Wages are equalized internationally only if we incorporate such psychic factors into the wage rate. Moreover, if other governments forbid their entry, the problem is not absolute “overpopulation,” but coercive barriers thrown up against personal migration.34

The loss to everyone as consumers from shackling the interregional division of labor and the efficient location of production, should not be overlooked in considering the effects of immigration barriers. The reductio ad absurdum, though not quite as devastating as in the case of the tariff, is also relevant here. As Cooley and Poirot point out:

If it is sound to erect a barrier along our national boundary lines, against those who see greater opportunities here than in their native land, why should we not erect similar barriers between states and localities within our nation? Why should a low-paid worker ... be allowed to migrate from a failing buggy shop in Massachusetts to the expanding automobile shops in Detroit. ... He would compete with native Detroiters for food and clothing and housing. He might be willing to work for less than the prevailing wage in Detroit, “upsetting the labor market” there. ... Anyhow, he was a native of Massachusetts, and therefore that state should bear the full “responsibility for his welfare.” Those are matters we might ponder, but our honest answer to all of them is reflected in our actions. ... We’d rather ride in automobiles than in buggies. It would be foolish to try to buy an automobile or anything else on the free market, and at the same time deny any individual an opportunity to help produce those things we want.35

The advocate of immigration laws who fears a reduction in his standard of living is actually misdirecting his fire. Implicitly, he believes that his geographic area now exceeds its optimum population point. What he really fears, therefore, is not so much immigration as any population growth. To be consistent, therefore, he would have to advocate compulsory birth control, to slow down the rate of population growth desired by individual parents.

• 32Many States have imposed emigration restrictions upon their subjects. These are not monopolistic; they are probably motivated by a desire to keep taxable and conscriptable people within a State’s jurisdiction.
• 33It is instructive to study the arguments of those “internationalist” Congressmen who advocate changes in American immigration barriers. The changes proposed do not even remotely suggest the removal of these barriers.
• 34Advocates of the “free market” who also advocate immigration barriers have rarely faced the implications of their position. See Appendix B, on “Coercion and Lebensraum.”
• 35Oscar W. Cooley and Paul Poirot, The Freedom to Move (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1951), pp. 11–12.

Child labor laws are a clear-cut example of restrictions placed on the employment of some labor for the benefit of restrictive wage rates for the remaining workers. In an era of much discussion about the “unemployment problem,” many of those who worry about unemployment also advocate child labor laws, which coercively prevent the employment of a whole body of workers. Child labor laws, then, amount to compulsory unemployment. Compulsory unemployment, of course, reduces the general supply of labor and raises wage rates restrictively as the connexity of the labor market diffuses the effects throughout the market. Not only is the child prevented from laboring, but the income of families with children is arbitrarily lowered by the government, and childless families gain at the expense of families with children. Child labor laws penalize families with children because the period of time in which children remain net monetary liabilities to their parents is thereby prolonged.

Child labor laws, by restricting the supply of labor, lower the production of the economy and hence tend to reduce the standard of living of everyone in the society. Furthermore, the laws do not even have the beneficial effect that compulsory birth control might have in reducing population, when it is above the optimum point. For the total population is not reduced (except from the indirect effects of the penalty on children), but the working population is. To reduce the working population while the consuming population remains undiminished is to lower the general standard of living.

Child labor laws may take the form of outright prohibition or of requiring “working papers” and all sorts of red tape before a youngster can be hired, thus partially achieving the same effect. The child labor laws are also bolstered by compulsory school attendance laws. Compelling a child to remain in a State or State-certified school until a certain age has the same effect of prohibiting his employment and preserving adult workers from younger competition. Compulsory attendance, however, goes even further in compelling a child to absorb a certain service—schooling—when he or his parents would prefer otherwise, thus imposing a further loss of utility upon these children.36 ,37

• 36For a brilliant discussion of the anti-child-labor Factory Acts in early nineteenth-century Britain, see Hutt, “The Factory System.” On the merits of child labor, see also D.C. Coleman, “Labour in the English Economy of the Seventeenth Century,” The Economic History Review, April, 1956, p. 286.36
• 37A news item illustrates the connection between child labor laws and restrictionist wage rates for adults—particularly for unions:
  Through the co-operation of some 26,000 grocers, plus trade unions, thousands of teenage boys will get a chance to earn summer spending money, Deputy Police Commission James B. Nolan, president of the Police Athletic League, disclosed yesterday. ... The program was worked out by PAL, with the assistance of Grocer Graphic, a trade newspaper. Raymond Bill, publisher of the trade paper, explained that thousands of groceries can employ one and in some cases two or three boys in odd jobs which do not interfere with union jobs. (New York Daily News, July 19, 1955; italics mine)
  See also Paul Goodman, Compulsory Mis-Education and the Community of Scholars (New York: Vintage Books, 1964), p. 54.

It has rarely been realized that conscription is an effective means of granting a monopolistic privilege and imposing restrictionist wage rates. Conscription, like child labor laws, removes a part of the labor force from competition in the labor market—in this case, the removal of healthy, adult members. Coerced removal and compulsory labor in the armed forces at only nominal pay increases the wage rates of those remaining, especially in those fields most directly competitive with the jobs of the drafted men. Of course, the general productivity of the economy also decreases, offsetting the increases for at least some of the workers. But, as in other cases of monopoly grants, some of the privileged will probably gain from the governmental action. Directly, conscription is a method by which the government can commandeer labor at far less than market wage rates—the rate it would have to pay to induce the enlistment of a volunteer army.38

• 38See also James C. Miller III, ed., Why the Draft? (Baltimore: Penguin Books, 1968).

Compulsory unemployment is achieved indirectly through minimum wage laws. On the free market, everyone’s wage tends to be set at his discounted marginal value productivity. A minimum wage law means that those whose DMVP is below the legal minimum are prevented from working. The worker was willing to take the job, and the employer to hire him. But the decree of the State prevents this hiring from taking place. Compulsory unemployment thus removes the competition of marginal workers and raises the wage rates of the other workers remaining. Thus, while the announced aim of a minimum wage law is to improve the incomes of the marginal workers, the actual effect is precisely the reverse—it is to render them unemployable at legal wage rates. The higher the minimum wage rate relative to free-market rates, the greater the resulting unemployment.39

Unions aim for restrictionist wage rates, which on a partial scale cause distortions in production, lower wage rates for non-members, and pockets of unemployment, and on a general scale lead to greater distortions and permanent mass unemployment. By enforcing restrictive production rules, rather than allowing individual workers voluntarily to accept work rules laid down by the enterpriser in the use of his property, unions reduce general productivity and hence the living standards of the economy. Any governmental encouragement of unions, therefore, such as is imposed under the Wagner-Taft-Hartley Act, leads to a regime of restrictive wage rates, injury to production, and general unemployment. The indirect effect on employment is similar to that of a minimum wage law, except that fewer workers are affected, and it is then the union-enforced minimum wage that is being imposed.

• 39On minimum wage laws, see Yale Brozen and Milton Friedman, The Minimum Wage: Who Pays? (Washington, D.C.: The Free Society Association, 1966). See also John M. Peterson and Charles T. Stewart, Jr., Employment Effects of Minimum Wage Rates (Washington, D.C.: American Enterprise Institute, August, 1969).39

Government unemployment benefits are an important means of subsidizing unemployment caused by unions or minimum wage laws. When restrictive wage rates lead to unemployment, the government steps in to prevent the unemployed workers from injuring union solidarity and union-enforced wage rates. By receiving unemployment benefits, the mass of potential competitors with unions are removed from the labor market, thus permitting an indefinite extension of union policies. And this removal of workers from the labor market is financed by the taxpayers—the general public.

Any form of governmental penalty on a type of market production or organization injures the efficiency of the economic system and prevents the maximum remuneration to factors, as well as maximum satisfaction to consumers. The most efficient are penalized, and, indirectly, the least efficient producers are subsidized. This tends not only to stifle market forms that are efficient in adapting the economy to changes in consumer valuations and given resources, but also to perpetuate inefficient forms. There are many ways in which governments have granted quasi-monopoly privileges to inefficient producers by imposing special penalties on the efficient. Special chain store taxes hobble chain stores and injure consumers for the benefit of their inefficient competitors; numerous ordinances outlawing pushcart peddlers destroy an efficient market form and efficient entrepreneurs for the benefit of less efficient but more politically influential competitors; laws closing businesses at specific hours injure the dynamic competitors who wish to stay open, and prevent consumers from maximizing their utilities in the time-pattern of their purchases; corporation income taxes place an extra burden on corporations, penalizing these efficient market forms and privileging their competitors; government requirements of reports from businesses place artificial restrictions on small firms with relatively little capital, and constitute an indirect grant of privilege to large business competitors.40

All forms of government regulation of business, in fact, penalize efficient competitors and grant monopolistic privileges to the inefficient. An important example is regulation of insurance companies, particularly those selling life insurance. Insurance is a speculative enterprise, as is any other, but based on the relatively greater certainty of biological mortality. All that is necessary for life insurance is for premiums to be currently levied in sufficient amount to pay benefits to the actuarially expected beneficiaries. Yet life insurance companies have, peculiarly, launched into the investment business, by contending that they need to build up a net reserve so large as to be almost sufficient to pay all benefits if half the population died immediately. They are able to accumulate such reserves by charging premiums far higher than would be needed for mere insurance protection. Furthermore, by charging constant premiums over the years they are able to phase out their own risks and place them on the shoulders of their unwitting policyholders (through the accumulating cash surrender values of their policies). Moreover, the companies, not the policyholders, keep the returns on the invested reserves. The insurance companies have been able to charge and collect the absurdly high premiums required by such a policy because state governments have outlawed, in the name of consumer protection, any possible competition from the low rates of nonreserve insurance companies. As a result, existing half-insurance, half-uneconomic “investment” companies have been granted special privilege by the government.

• 40The withholding tax is an example of a “wartime” measure that now appears to be an indestructible part of our tax system; it compels businesses to be tax collectors for the government without pay. It is thus a type of binary intervention that particularly penalizes small firms, which are burdened more than proportionately by the overhead requirements of running their business.

It may seem strange to the reader that one of the most important governmental checks on efficient competition, and therefore grants of quasi monopolies, are the antitrust laws. Very few, whether economists or others, have questioned the principle of the antitrust laws, particularly now that they have been on the statute books for some years. As is true of many other measures, evaluation of the antitrust laws has not proceeded from an analysis of their nature or of their necessary consequences, but from an impressionistic reaction to their announced aims. The chief criticism of these laws is that “they haven’t gone far enough.” Some of those most ardent in the proclamation of their belief in the “free market” have been most clamorous in calling for stringent antitrust laws and the “breakup of monopolies.” Even the most “right-wing” economists have only gingerly criticized certain antitrust procedures, without daring to attack the principle of the laws per se.

The only viable definition of monopoly is a grant of privilege from the government.41 It therefore becomes quite clear that it is impossible for the government to decrease monopoly by passing punitive laws. The only way for the government to decrease monopoly, if that is the desideratum, is to remove its own monopoly grants. The antitrust laws, therefore, do not in the least “diminish monopoly.” What they do accomplish is to impose a continual, capricious harassment of efficient business enterprise. The law in the United States is couched in vague, indefinable terms, permitting the Administration and the courts to omit defining in advance what is a “monopolistic” crime and what is not. Whereas Anglo-Saxon law has rested on a structure of clear definitions of crime, known in advance and discoverable by a jury after due legal process, the antitrust laws thrive on deliberate vagueness and ex post facto rulings. No businessman knows when he has committed a crime and when he has not, and he will never know until the government, perhaps after another shift in its own criteria of crime, swoops down upon him and prosecutes. The effects of these arbitrary rules and ex post facto findings of “crime” are manifold: business initiative is hampered; businessmen are fearful and subservient to the arbitrary rulings of government officials; and business is not permitted to be efficient in serving the consumer. Since business always tends to adopt those practices and that scale of activity which maximize profits and income and serve the consumers best, any harassment of business practice by government can only hamper business efficiency and reward inefficiency.42

It is vain, however, to call simply for clearer statutory definitions of monopolistic practice. For the vagueness of the law results from the impossibility of laying down a cogent definition of monopoly on the market. Hence the chaotic shift of the government from one unjustifiable criterion of monopoly to another: size of firm, “closeness” of substitutes, charging a price “too high” or “too low” or the same as a competitor, merging that “substantially lessens competition,” etc. All these criteria are meaningless. An example is the criterion of substantially lessening competition. This implicitly assumes that “competition” is some sort of quantity. But it is not; it is a process, whereby individuals and firms supply goods on the market without using force.43 To preserve “competition” does not mean to dictate arbitrarily that a certain number of firms of a certain size have to exist in an industry or area; it means to see to it that men are free to compete (or not) unrestrained by the use of force.

The original Sherman Act stressed “collusion” in “restraint of trade.” Here again, there is nothing anticompetitive per se about a cartel, for there is conceptually no difference between a cartel, a merger, and the formation of a corporation: all consist of the voluntary pooling of assets in one firm to serve the consumers efficiently. If “collusion” must be stopped, and cartels must be broken up by the government, i.e., if to maintain competition it is necessary that co-operation be destroyed, then the “anti-monopolists” must advocate the complete prohibition of all corporations and partnerships. Only individually owned firms would then be tolerated. Aside from the fact that this compulsory competition and outlawed co-operation is hardly compatible with the “free market” that many antitrusters profess to advocate, the inefficiency and lower productivity stemming from the outlawing of pooled capital would send the economy a good part of the way from civilization to barbarism.

An individual becoming idle instead of working may be said to “restrain” trade, although he is simply not engaging in it rather than “restraining” it. If antitrusters wish to prevent idleness, which is the logical extension of the W.H. Hutt concept of consumers’ sovereignty, then they would have to pass a law compelling labor and outlawing leisure—a condition certainly close to slavery.44 But if we confine the definition of “restraint” to restraining the trade of others, then clearly there can be no restraint of trade at all on the free market—and only the government (or some other institution using violence) can restrain trade. And one conspicuous form of such restraint is antitrust legislation itself!

One of the few cogent discussions of the antitrust principle in recent years has been that of Isabel Paterson. As Mrs. Paterson states:

Standard Oil did not restrain trade; it went out to the ends of the earth to make a market. Can the corporations be said to have “restrained trade” when the trade they cater to had no existence until they produced and sold the goods? Were the motor car manufacturers restraining trade during the period in which they made and sold fifty million cars, where there had been no cars before? ... Surely ... nothing more preposterous could have been imagined than to fix upon the American corporations, which have created and carried on, in ever-increasing magnitude, a volume and variety of trade so vast that it makes all previous production and exchange look like a rural roadside stand, and call this performance “restraint of trade,” further stigmatizing it as a crime!45

And Mrs. Paterson concludes:

Government cannot “restore competition” or “ensure” it. Government is monopoly; and all it can do is to impose restrictions which may issue in monopoly, when they go so far as to require permission for the individual to engage in production. This is the essence of the Society-of-Status. The reversion to status law in the antitrust legislation went unnoticed . . . the politicians . . . had secured a law under which it was impossible for the citizen to know beforehand what constituted a crime, and which therefore made all productive effort liable to prosecution if not to certain conviction.46

In the earlier days of the “trust problem,” Paul de Rousiers commented:

Directly the formation of Trusts is not induced by the natural action of economic forces; as soon as they depend on artificial protection (such as tariffs), the most effective method of attack is to simply reduce the number and force of these protective accidents to the greatest possible extent. We can attack artificial conditions, but are impotent when opposing natural conditions. ... America has hitherto pursued the exactly reverse methods, blaming economic forces tending to concentrate industry, and joining issue by means of antitrust legislation, a series of entirely artificial measures. Thus there is to be no understanding between competing companies, etc. The results have been pitiful—a violent restriction of fruitful initiative. ... [The legislation] does not touch the rest of the evil, enlarges, in place of restraining, artificial conditions, and finally regulates and complicates matters whose supreme needs are simplification and removal of restrictions.47

• 41For further elaboration, see Man, Economy, and State, chapter 10.
• 42See John W. Scoville and Noel Sargent, Fact and Fancy in the T.N.E.C. Monographs (New York.: National Association of Manufacturers, 1942), pp. 298–321, 671–74.
• 43F.A. Hayek, Individualism and Economic Order (Chicago: University of Chicago Press, 1948), chap. V.
• 44Municipal ordinances against “vagrancy” or “loitering” are certainly a beginning in this direction and are used to impose forced labor upon the poorest sectors of the population.
• 45Isabel Paterson, The God of the Machine (New York: G.P. Putnam’s Sons, 1943), pp. 172, 175. See also Scoville and Sargent, Fact and Fancy in the T.N.E.C. Monographs, pp. 243–44.
• 46Paterson, God of the Machine, pp. 176–77.
• 47Paul de Rousiers, Les Industries Monopolisées aux Etats-Unis, as quoted in Gustave de Molinari, The Society of Tomorrow (New York: G.P. Putnam’s Sons, 1904), p. 194.

An important example of the monopolizing effects of a program supposedly designed to combat monopoly is the court decision outlawing basing-point pricing. On the free market, price uniformity means uniformity at each consuming center, and not uniformity at each mill. In commodities where freight costs are a large proportion of final price, this distinction becomes important, and many firms adopt such price uniformity, enabling firms further away from a consuming center to “absorb” some freight charges in order to compete with local firms. One of the forms of freight absorption is called “basing-point pricing.” Ruling this practice “monopolistic” and virtually decreeing that every firm must charge uniform prices “at the mill” not only prevents interlocational competition in such industries, but confers an artificial monopolistic privilege on local firms. Each local firm is granted the area of its own location, with a haven set by the freight costs of out-of-town rivals, within which it can charge its customers a monopoly price. Firms better able to absorb freight costs and prosper in a wider market are penalized and prevented from doing so. Furthermore, the decreasing-cost advantages of a large-scale market and large-scale production are eliminated, as each firm is confined to a small compass. Firms’ locations are altered, and they are forced to cluster near large consuming areas, despite the greater advantages that other locations had offered to these companies.48 Furthermore, such a ruling penalizes small businesses, since only large firms can afford to build many branches to compete in each local area.49

• 48See United States Steel Corporation, T.N.E.C. Papers (New York: U.S. Steel Corp., 1940), II, 102–35.
• 49See William M. Simon, “The Case Against the Federal Trade Commission,” University of Chicago Law Review, 1952, pp. 320–22. On basing points, see also Scoville and Sargent, Fact and Fancy in the T.N.E.C. Monographs, pp. 776–82; Wayne A. Leeman, “Review of Paul Giddens’ Standard Oil Company (Indiana),” American Economic Review, September, 1956, p. 733; and Donald Dewey, “A Reappraisal of F.O.B. Pricing and Freight Absorption,” Southern Economic Journal, July, 1955, pp. 48–54.

Conservation laws restrict the use of depleting resources and force owners to invest in the maintenance of replaceable “natural” resources. The effect of both cases is similar: the restriction of present production for the supposed benefit of future production. This is obvious in the case of depleting resources; factors are also compelled to maintain replaceable resources (such as trees) when they could have more profitably engaged in other forms of production. In the latter case there is a double distortion: factors are forcibly shifted to future production, and they are also forced into a certain type of future production—the replacement of these particular resources.50

Clearly, one aim of conservation laws is to force the ratio of consumption to saving (investment) lower than the market would prefer. People’s voluntary allocations made according to their time preferences are forcibly altered, and relatively more investment is forced into production for future consumption. In short, the State decides that the present generation must be made to allocate its resources more to the future than it wishes to do; for this service the State is held up as being “farseeing,” compared to “shortsighted” free individuals. But, presumably, depleting resources must be used at some time, and some balance must always be struck between present and future production. Why does the claim of the present generation weigh so lightly in the scales? Why is the future generation so much more worthy that it can compel the present to carry a greater load? What did the future ever do to deserve privileged treatment?51 Indeed, since the future is likely to be wealthier than the present, the reverse might well apply! The same reasoning applies to all attempts to change the market’s time-preference ratio. Why should the future be able to enforce greater sacrifices on the present than the present is willing to undergo? Furthermore, after a span of years, the future will become the present; must the future generations then also be restricted in their production and consumption because of another wraithlike “future”? It must not be forgotten that the aim of all productive activity is goods and services that will and can be consumed only in some present. There is no rational basis for penalizing consumption in one present and privileging one future present; and there is still less reason for restricting all presents in favor of some will-o’-the-wisp “future” that can never appear and lies always beyond the horizon. Yet this is the goal of conservation laws. Conservation laws are truly “pie-in-the-sky” legislation.52

Individuals in the market decide on the time structure in their allocation of factors in accordance with the estimated revenue that their resources will bring in present as against future use. In other words, they will tend to maximize the present value, at any time, of their land and capital assets.53 The time structure of rental income from assets is determined by the interest rate, which in turn is determined by the time-preference schedules of all individuals on the market. Time preference, in addition to the specific estimated demands for each good, will determine the allocations of factors to each use. Since a lower time preference will connote more investment in future consumers’ goods, it will also mean more “conservation” of natural resources. A high time preference will lead to less investment and more consumption in the present, and consequently to less “conservation.”54

Most conservationist arguments evince almost no familiarity with economics. Many assume that entrepreneurs have no foresight and would blithely use natural resources only to find themselves some day suddenly without any property. Only the wise, providential State can foresee depletion. The absurdity of this argument is evident when we realize that the present value of the entrepreneur’s land is dependent on the expected future rents from his resources. Even if the entrepreneur himself should be unaccountably ignorant, the market will not be, and its valuation (i.e., the valuation of interested experts with money at stake) will tend to reflect its value accurately. In fact, it is the entrepreneur’s business to forecast, and he is rewarded for correct forecasting by profits. Will entrepreneurs on the market have less foresight than bureaucrats comfortably ensconced in their seizure of the taxpayers’ money?55

Another error made by the conservationists is to assume a technology fixed for all time. Human beings use what resources they have; and as technological knowledge grows, the types of usable resources multiply. If we have less timber to use than past generations, we need less too, for we have found other materials that can be used for construction or fuel. Past generations possessed an abundance of oil in the ground, but for them oil was valueless and hence not a resource. Our modern advances have taught us how to use oil and have enabled us to produce the equipment for this purpose. Our oil resources, therefore, are not fixed; they are infinitely greater than those of past generations. Artificial conservation will wastefully prolong resources beyond the time when they have become obsolete.

How many writers have wept over capitalism’s brutal ravaging of the American forests! Yet it is clear that American land has had more value-productive uses than timber production, and hence the land was diverted to those ends that better satisfied consumer wants.56 What standards can the critics set up instead? If they think too much forest has been cut down, how can they arrive at a quantitative standard to determine how much is “too much”? In fact, it is impossible to arrive at any such standard, just as it is impossible to arrive at any quantitative standards for market action outside the market. Any attempt to do so must be arbitrary and unsupported by any rational principle.

America has been the prime home of conservation laws, particularly on behalf of its “public domain.” Under a purely free-enterprise system, there would be no such thing as a governmentally owned public domain. Land would simply remain unowned until it first came into use, after which it would be owned by the first user and his heirs or assigns.57 The consequences of government ownership of the public domain will be further explored below. Here we may state a few of them. When the government owns the land and permits private individuals to use it freely, the result is indeed a wasteful overexploitation of the resource. More factors are employed to use up the resource than on a free market, since the only gains to the users are immediate; and if they wait, other users will deplete the limited resource. Free use of a governmentally owned resource truly inaugurates a “war of all against all,” as more and more users, eager for the free bargain, attempt to exploit the scarce resource. To have a scarce resource and to make everyone believe (because of the free gift of use) that its supply is unlimited, causes overuse of the resource, favoritism, figurative queuing up, etc. A striking example was the Western grazing lands in the latter half of the nineteenth century. The government prevented cattlemen from owning the land and fencing it in, and insisted it be kept as “open range” owned by the government. The result was excessive use of the range and its untimely depletion.58 Another example is the rapid depletion of the fisheries. Since no one is permitted to own any segment of the sea, no one sees any sense in preserving the value of the resource, as each is benefited only by rapid use, in advance of his competitors.59

Leasing is hardly a superior form of land use. If the government owns the land and leases it to grazers or timber users, once again there is no incentive for the lessee to preserve the value of the resource, since he does not own it. It is to his best interest as a lessee to use the resource as intensively as possible in the present. Hence, leasing also depletes natural resources excessively.

In contrast, if private individuals were to own all the lands and resources, then it would be to the owners’ interest to maximize the present value of each resource. Excessive depletion of the resource would lower its capital value on the market. Against the preservation of the capital value of the resource as a whole, the resource owner balances the income to be presently obtained from its use. The balance is decided, ceteris paribus, by the time preference and the other preferences of the market.60 If private individuals can only use but not own the land, the balance is destroyed, and the government has provided an impetus to excessive present use.

Not only is the announced aim of conservation laws—to aid the future at the expense of the present—illegitimate, and the arguments in favor of it invalid, but compulsory conservation would not achieve even this goal. For the future is already provided for through present saving and investment. Conservation laws will indeed coerce greater investment in natural resources: using other resources to maintain renewable resources and forcing a greater inventory of stock in depletable resources. But total investment is determined by the time preferences of individuals, and these will not have changed. Conservation laws, then, do not really increase total provisions for the future; they merely shift investment from capital goods, buildings, etc., to natural resources. They thereby impose an inefficient and distorted investment pattern on the economy.61

Given the nature and consequences of conservation laws, why should anyone advocate this legislation? Conservation laws, we must note, have a very “practical” aspect. They restrict production, i.e., the use of a resource, by force and thereby create a monopolistic privilege, which leads to a restrictionist price to owners of this resource or of substitutes for it. Conservation laws can be more effective monopolizers than tariffs because, as we have seen, tariffs permit new entry and unlimited production by domestic competitors.62 Conservation laws, on the other hand, serve to cartelize a land factor and absolutely restrict production, thereby helping to insure permanent (and continuing) monopoly gains for the owners. These monopoly gains, of course, will tend to be capitalized into an increase in the capital value of the land. The person who later buys the monopolized factor, then, will simply earn the going rate of interest on his investment, even though the monopoly gain will be included in his earnings.

Conservation laws, therefore, must also be looked upon as grants of monopolistic privilege. One outstanding example is the American government’s policy, since the end of the nineteenth century, of “reserving” vast tracts of the “public domain”—i.e., the government’s land holdings.63 Reserving means that the government keeps land under its ownership and abandons its earlier policy of keeping the domain open for homesteading by private owners. Forests, in particular, have been reserved, ostensibly for the purpose of conservation. What is the effect of withholding huge tracts of timberland from production? It is to confer a monopolistic privilege, and therefore a restrictionist price, on competing private lands and on competing timber.

We have seen that limiting the labor supply confers a restrictionist wage on the privileged workers (while the workers pushed out by union wage rates or by licenses or immigration laws must find lower-paying and less value-productive jobs elsewhere). A monopoly or quasi-monopoly privilege for the production of capital or consumer goods, on the other hand, may or may not confer a monopoly price, depending on the configuration of the demand curves for the individual firms, as well as their costs. Since a firm can contract or expand its supply at will, it sets its supply with the knowledge that lowering output to achieve a monopoly price must also lower the total amount of goods sold.64 The laborer need bother with no such consideration (aside from a negligible variation in demands for each laborer’s total hours of service). What about the privileged landowner? Will he achieve a definite restrictionist, or a possible monopoly, price? A prime characteristic of a piece of land is that it cannot be increased by labor; if it is augmentable, then it is a capital good, not land. The same, in fact, applies to labor, which, in all but long periods of time, can be regarded as fixed in its total supply. Since labor in its totality cannot be increased (except, as we have noted, in regard to hours of work per day), government restriction on the labor supply—child labor laws, immigration barriers, etc.—therefore confers a restrictionist wage increase on the workers remaining. Capital or consumer goods can be increased or decreased, so that privileged firms must take their demand curves into account. Land, on the other hand, cannot be increased; restriction of the supply of land, therefore, also confers a restrictionist price of land above the free-market price.65 The same is true for depleting natural resources, which cannot have their supply increased and are therefore considered part of land. If the government forces land or natural resources out of the market, therefore, it inevitably lowers the supply available on the market and just as inevitably confers a monopoly gain and a restrictionist price on the remaining landowners or resource owners. In addition to all of their other effects, conservation laws force labor to abandon good lands and, instead, cultivate the remaining submarginal land. This coerced shift lowers the marginal productivity of labor and consequently reduces the general standard of living.

Let us return to the government’s policy of reserving timber lands. This confers a restrictionist price and a monopoly gain on the lands remaining in use. Land markets are specific and do not have the same general connexity as labor markets. Therefore, the restrictionist price rise is confined far more to lands that directly competed, or would compete, with the withdrawn or “reserved” lands. In the case of American conservation policy, the particular beneficiaries were (a) the land-grant Western railroads and (b) the existing timber-owners. The land-grant railroads had received vast subsidies of land from the government: not only rights-of-way for their roads, but fifteen-mile tracts on either side of the line. Government reservation of public lands greatly raised the price received by the railroads when they later sold this land to new inhabitants of the area. The railroads thus received another gift from the government—this time in the form of a monopoly gain, at the expense of the consumers.

The railroads were not ignorant of the monopolistic advantages that would be conferred upon them by conservation laws; in fact, the railroads were the financial “angel” of the entire conservation movement. Thus, Peffer writes:

There was a definite basis for the charge that the railroads were interested in a repeal of [various laws permitting easy transfer of the public domain to the hands of private settlers]. The National Irrigation Association, which was the most vigorous advocate of land law reform outside of the Administration, was financed in part by the transcontinental railroads and by the Burlington and the Rock Island railroads, to the amount of $39,000 a year, out of a total budget of around $50,000. The program of this association and the railroads, as announced by James J. Hill [a preeminent railroad magnate] was almost more advanced than that of [the leading conservationists].66

The timber owners also understood the gains they would acquire from forest “conservation.” President Theodore Roosevelt himself announced that “the great users of timber are themselves forwarding the movement for forest preservation.” As one student of the problem declared, the

lumber manufacturers and timber owners ... had arrived at a harmonious understanding with Gifford Pinchot [the leader in forest conservation] as early as 1903. ... In other words, the government by withdrawing timber lands from entry and keeping them off the market would aid in appreciating the value of privately owned timber.67

• 50Economists have, until recently, almost completely neglected conservation laws, leaving the field to romantic “conservationists.” But see the brilliant analysis by Anthony Scott, “Conservation Policy and Capital Theory,” Canadian Journal of Economics and Political Science, November, 1954, pp. 504–13, and idem, Natural Resources: The Economics of Conservation (Toronto: University of Toronto Press, 1955); see also Mises, Human Action, pp. 652–53.
• 51Scott points out that this attitude rests on the contemptuous and unsupported view that future generations will not be as competent to take care of themselves as is the present generation. See Scott, Natural Resources, p. 94.
• 52As Scott aptly asks: Why agree “to preserve resources as they would be in the absence of their human users?” Scott, “Conservation Policy,” p. 513. And further: “Most of [our] progress has taken the form of converting natural resources into more desirable forms of wealth. If man had prized natural resources above his own product, he would doubtless have remained savage, practicing ‘conservatism.’ “ Scott, Natural Resources, p. 11. If the logic of tariffs is to destroy the market, then the logic of conservation laws is to destroy all human production and consumption.
• 53Strictly, investors will attempt to maximize their “internal rates of return,” but maximizing the present value is close enough for our purposes. On the difference between the two goals in “Austrian” vs. “neo-classical” thought, see André Gabor and I.F. Pearce, “A New Approach to the Theory of the Firm,” Oxford Economic Papers, October, 1952, pp. 252–65.
• 54In some cases, however, lower time preferences and greater investment activity will deplete natural resources at a more rapid rate, if there is a particularly great demand for their use in the new activity. This is likely to be true of such resources as coal and oil. See Scott, Natural Resources, pp. 95–97.
• 55Entrepreneurs with poor foresight are quickly expelled from their positions through losses. It is ironic that the “plight of the Okies” in the 1930’s, widely publicized as a plea for conservation laws and the result of “cruel capitalism,” actually resulted from the fact that bad entrepreneurs (the Okies) farmed land that was valueless and submarginal. Forced “conservation” investment on this submarginal land or government subsidization of the “Okies” would have aggravated a dislocation that the market quickly eliminated.
       Much American soil erosion, furthermore, has stemmed from failure to preserve full private property rights in land. Tenant farmers, moving every few years, often milked the capital of the landlord’s property, wasting the resource, in default of proper enforcement of the contractual necessity to return the land to its owner intact. See Scott, National Resources, pp. 118, 168.
• 56A typical conservationist complainer was J.D. Brown who, in 1832, worried over the consumption of timber: “Whence shall we procure supplies of timber fifty years hence for the continuance of our navy?” Quoted in Scott, National Resources, p. 37. Scott also notes that the critics never seemed to realize that a nation’s timber can be purchased from abroad. Scott, “Conservation Policy.”
• 57This system was dimly adumbrated by the Homestead Law of 1862. However, this law imposed an arbitrary and pointless maximum on the size of farm that could be staked out by the first user. This limitation had the result of nullifying the law further West, where the minimum acreage needed for cattle or sheep grazing was far larger than the antiquated legal maximum would allow. Furthermore, the maximum limitation and the requirement that the land be used for farming led to the very “ravaging” of the forests that conservationists now deplore, for it hobbled private ownership of large forest tracts.
• 58See E. Louise Peffer, The Closing of the Public Domain (Stanford: Stanford University Press, 1951), pp. 25–27. On the advantages of private ownership of grazing land, see the petition of the American Cattle Growers Association, March, 1902, ibid., pp. 78–79. See also Samuel P. Hays, Conservation and the Gospel of Efficiency (Cambridge: Harvard University Press, 1959), pp. 50–51. The government’s failure to extend the homestead principle to the larger areas had another important social effect: it led to constant squabbles between the users—the cattlemen and the other homesteaders who came later and demanded their “just share” of the free land.
• 59For an illuminating discussion of private property rights in fisheries, see Gordon Tullock, The Fisheries (Columbia: University of South Carolina Bureau of Business and Economic Research, February, 1962). See also Anthony Scott, “The Fishery, A Sole Resource,” Journal of Political Economy, April, 1955, and idem, Natural Resources, pp. 117–29.
• 60High demand for the product increases the value of the resource, and thereby stimulates its preservation, investment in it, and exploration for it. High-cost sources of supply will now be tapped, thus further increasing the effective supply of the product on the market. See Scott, Natural Resources, p. 14.
• 61See ibid., pp. 21–22.
• 62There is another similarity between tariffs and conservation laws: both aim at national self-sufficiency, and both try to foster national or local industries by coercive intervention in the free market.
• 63For an analysis of government land ownership and government ownership in general, see below.
• 64On the free market, the demand curve for each firm in equilibrium must be elastic above the equilibrium price; otherwise the firm would reduce output. This does not, of course, mean that the demand curve for the entire industry must be elastic. When we refer to a possible monopoly price, the demand curve consulted by each monopolistic firm is its own.
• 65Another example of government creation of a monopoly gain in land has been cited by the Georgist economist, Mason Gaffney: “City governments all over the country deliberately keep ‘dead lands’ off the market, with the avowed purpose of ‘protecting’ other land prices.” Gaffney cites the head of the American Society of Planning Officials as advising that a vacant one-third of urban land be “more or less permanently removed from private ownership” in order to keep up land values for the owners of the remaining two-thirds. Gaffney concludes: “Following this advice, many state and local governments avoid returning tax-reverted lands to use.” Mason Gaffney, “Vituperation Well Answered,” Land and Liberty, December, 1952, p. 126; reprinted in Spencer Heath, Progress and Poverty Reviewed (2nd ed.; New York: The Freeman, 1953).
• 66Peffer, Closing of the Public Domain, p. 54. Senator H.C. Hansbrough also pointed out that the railroads paid $45,000 annually to a leading conservationist magazine, The Talisman, and financed the Washington conservation lobby. H.C. Hansbrough, The Wreck: An Historical and Critical Study of the Administrations of Theodore Roosevelt and William Howard Taft (1913), p. 52.
• 67J.H. Cox, “Organization of the Lumber Industry in the Pacific Northwest, 1889–1914” (Ph.D. diss., University of California, 1937), pp. 174–77; cited in Peffer, Closing of the Public Domain, p. 57. See also Hays, Conservation and the Gospel of Efficiency.

A patent68 is a grant of monopoly privilege by the government to first discoverers of certain types of inventions.69 Some defenders of patents assert that they are not monopoly privileges but simply property rights in inventions, or even in “ideas.” But in free-market, or libertarian, law everyone’s right to property is defended without a patent. If someone has an idea or plan and produces an invention, which is then stolen from his house, the stealing is an act of theft illegal under general law. On the other hand, patents actually invade the property rights of those independent discoverers of an idea or an invention who happen to make the discovery after the patentee. These later inventors and innovators are prevented by force from employing their own ideas and their own property. Furthermore, in a free society the innovator could market his invention and stamp it “copyright,” thereby preventing buyers from reselling the same or a duplicate product.

Patents, therefore, invade rather than defend property rights. The speciousness of the argument that patents protect property rights in ideas is demonstrated by the fact that not all, but only certain types of original ideas, certain types of innovations, are considered legally patentable. Numerous new ideas are never treated as subject to patent grants.

Another common argument for patents is that “society” simply makes a contract with the inventor to purchase his secret, so that “society” will have use of it. But in the first place, “society” could then pay a straight subsidy, or price, to the inventor; it does not have to prevent all later inventors from marketing their inventions in this field. Secondly, there is nothing in the free economy to prevent any individual or group of individuals from purchasing secret inventions from their creators. No monopolistic patent is therefore necessary.

The most popular argument for patents among economists is the utilitarian one that a patent for a certain number of years is necessary to encourage a sufficient amount of research expenditure toward inventions and innovations in new processes and products.

This is a curious argument, because the question immediately arises: By what standard do you judge that research expenditures are “too much,” “too little,” or just about enough? Resources in society are limited, and they may be used for countless alternative ends. By what standards does one determine that certain uses are “excessive,” that certain uses are “insufficient,” etc.? Someone observes that there is little investment in Arizona but a great deal in Pennsylvania; he indignantly asserts that Arizona deserves “more investment.” But what standards can he use to justify such a statement? The market does have a rational standard: the highest money incomes and highest profits, for these may be achieved only through maximum service to the consumers. This principle of maximum service to consumers and producers alike (i.e., to everybody) governs the seemingly mysterious market allocation of resources: how much to devote to one firm or another, to one area or another, to the present or the future, to one good or another, to research rather than other forms of investment. The observer who criticizes this allocation can have no rational standards for decision; he has only his arbitrary whim. This is particularly true of criticism of production relations in contrast to interference with consumption. Someone who chides consumers for buying too many cosmetics may have, rightly or wrongly, some rational basis for his criticism. But someone who thinks that more or less of a certain resource should be used in a certain manner, or that business firms are “too large” or “too small,” or that too much or too little is spent on research or is invested in a new machine, can have no rational basis for his criticism. Businesses, in short, are producing for a market, guided by the valuations of consumers on that market. Outside observers may criticize the ultimate valuations of consumers if they choose—although if they interfere with consumption based on these valuations, they impose a loss of utility upon the consumers—but they cannot legitimately criticize the means, the allocations of factors, by which these ends are served.

Capital funds are limited, as are all other resources, and they must be allocated to various uses, one of which is research expenditures. On the market, rational decisions are made with regard to setting research expenditures, in accordance with the best entrepreneurial expectations of future returns. To subsidize research expenditures by coercion would restrict the satisfaction of consumers and producers on the market.

Many advocates of patents believe that the ordinary competitive processes of the market do not sufficiently encourage the adoption of new processes, and that therefore innovations must be coercively promoted by the government. But the market decides on the rate of introduction of new processes just as it decides on the rate of industrialization of a new geographic area. In fact, this argument for patents is very similar to the “infant industry” argument for tariffs—that market procedures are not sufficient to permit the introduction of worthy new processes. And again the answer is the same: that people must balance the superior productivity of the new processes against the cost of installing them, i.e., against the advantage possessed by the old process in being already in existence. Conferring special coercive privileges upon innovation would needlessly scrap valuable plants already in existence and impose an excessive burden upon consumers.

Nor is it by any means self-evident even that patents encourage an increase in the absolute quantity of research expenditures. But certainly we can say that patents distort the allocation of factors on the type of research being conducted. For while it is true that the first discoverer benefits from the privilege, it is also true that his competitors are excluded from production in the area of the patent for many years. And since a later patent can build on an earlier, related one in the same field, competitors can often be discouraged indefinitely from further research expenditures in the general area covered by the patent. Moreover, the patentee himself is discouraged from engaging in further research in this field, for the privilege permits him to rest on his laurels for the entire period of the patent, with the assurance that no competitor can trespass on his domain. The competitive spur to further research is eliminated. Research expenditures, therefore, are overstimulated in the early stages before anyone has a patent and unduly restricted in the period after the patent is received. In addition, some inventions are considered patentable, while others are not. The patent system thus has the further effect of artificially stimulating research expenditures in the patentable areas, while artificially restricting research in the nonpatentable areas.

As Arnold Plant summed up the problem of competitive research expenditures and innovations:

Neither can it be assumed that inventors would cease to be employed if entrepreneurs lost the monopoly over the use of their inventions. Businesses employ them today for the production of nonpatentable inventions, and they do not do so merely for the profit which priority secures. In active competition ... no business can afford to lag behind its competitors. The reputation of a firm depends upon its ability to keep ahead, to be first in the market with new improvements in its products and new reductions in their prices.70

Finally, of course, the market itself provides an easy and effective course for those who feel that there are not enough expenditures being made in certain directions on the free market. They are free to make these expenditures themselves. Those who would like to see more inventions made and exploited are at liberty to join together and subsidize such efforts in any way they think best. In doing so, they would, as consumers, add resources to the research and invention business. And they would not then be forcing other consumers to lose utility by conferring monopoly grants and distorting the allocation of the market. Their voluntary expenditures would become part of the market and help to express its ultimate consumer valuations. Furthermore, later inventors would not be restricted. The friends of invention could accomplish their aims without calling in the State and imposing losses on the mass of consumers.

Patents, like any monopoly grant, confer a privilege on one and restrict the entry of others, thereby distorting the freely competitive pattern of industry. If the product is sufficiently demanded by the public, the patentee will be able to achieve a monopoly price. Patentees, instead of marketing their invention themselves, may elect either to (1) sell their privilege to another or (2) keep the patent privilege but sell licenses to other firms, permitting them to market the invention. The patent privilege thereby becomes a capitalized monopoly gain. It will tend to sell at the price that capitalizes the expected future monopoly gain to be derived from it. Licensing is equivalent to renting capital, and a license will tend to sell at a price equal to the discounted sum of the rental income that the patent will earn for the period of the license. A system of general licensing is equivalent to a tax on the use of the new process, except that the patentee receives the tax instead of the government. This tax restricts production in comparison with the free market, thereby raising the price of the product and reducing the consumer’s standard of living. It also distorts the allocation of resources, keeping factors out of these processes and forcing them to enter less value-productive fields.

Most current critics of patents direct their fire not at the patents themselves, but at alleged “monopolistic abuses” in their use. They fail to realize that the patent itself is the monopoly and that, when someone is granted a monopoly privilege, it should occasion neither surprise nor indignation when he makes full use of it.

• 68On patents and copyrights, see Man, Economy, and State, pp. 745–54.
• 69The patent was instituted in England by King Charles I as a transparent means of evading the Parliamentary prohibition of grants of monopoly in 1624.
• 70Arnold Plant, “The Economic Theory concerning Patents for Inventions,” Economica, February, 1934, p. 44.

Franchises are generally grants of permission by the government for the use of its streets. Where the franchises are exclusive or restrictive, they are grants of monopoly or quasi-monopoly privilege. Where they are general and not exclusive, however, they cannot be called monopolistic. For the franchise question is complicated by the fact that the government owns the streets and therefore must give permission before anyone uses them. In a truly free market, of course, streets would be privately, not governmentally, owned, and the problem of franchises would not arise.

The fact that the government must give permission for the use of its streets has been cited to justify stringent government regulations of “public utilities,” many of which (like water or electric companies) must make use of the streets. The regulations are then treated as a voluntary quid pro quo. But to do so overlooks the fact that governmental ownership of the streets is itself a permanent act of intervention. Regulation of public utilities or of any other industry discourages investment in these industries, thereby depriving consumers of the best satisfaction of their wants. For it distorts the resource allocations of the free market. Prices set below the free market create an artificial shortage of the utility service; prices set above those determined by the free market impose restrictions and a monopoly price on the consumers. Guaranteed rates of return exempt the utility from the free play of market forces and impose burdens on the consumers by distorting market allocations.

The very term “public utility,” furthermore, is an absurd one. Every good is useful “to the public,” and almost every good, if we take a large enough chunk of supply as the unit, may be considered “necessary.” Any designation of a few industries as “public utilities” is completely arbitrary and unjustified.71

• 71On the inherent absurdities of the very concept of “public utility” and the impossibility of definition, as well as for an excellent critique of public utility regulation by government, see Arthur S. Dewing, The Financial Policy of Corporations (5th ed.; New York: Ronald Press, 1953), I, 309–10, and the remainder of the chapter.

In contrast to the franchise, which may be made general and nonexclusive (as long as the central organization of force continues to own the streets), the right of eminent domain could not easily be made general. If it were, then chaos would truly ensue. For when the government confers a privilege of eminent domain (as it has done on railroads and many other businesses), it has virtually granted a license for theft. If everyone had the right of eminent domain, every man would be legally empowered to compel the sale of property that he wanted to buy. If A were compelled to sell property to B at the latter’s will, and vice versa, then neither could be called the owner of his own property. The entire system of private property would then be scrapped in favor of a society of mutual plunder. Saving and accumulation of property for oneself and one’s heirs would be severely discouraged, and rampant plunder would cut ever more sharply into whatever property remained. Civilization would soon revert to barbarism, and the standards of living of the barbarian would prevail.

The government itself is the original holder of the “right of eminent domain,” and the fact that the government can despoil any property holder at will is evidence that, in current society, the right to private property is only flimsily established. Certainly no one can say that the inviolability of private property is protected by the government. And when the government confers this power on a particular business, it is conferring upon it the special privilege of taking property by force.

Evidently, the use of this privilege greatly distorts the structure of production. Instead of being determined by voluntary exchange, self-ownership, and efficient satisfaction of consumer wants, prices and the allocation of productive resources are now determined by brute force and government favor. The result is an overextension of resources (a malinvestment) in the privileged firm or industry and an underinvestment in other firms and industries. At any given time, as we have stressed, there is a limited amount of capital—a limited supply of all resources—that can be devoted to investment. Compulsory increase in investment in one field can be achieved only by an arbitrary decline in investment in other fields.72

Many advocates of eminent domain contend that “society,” in the last analysis, has the right to use any land for “its” purposes. Without knowing it, they have thus conceded the validity of a major Henry Georgist plank: that every person, by virtue of his birth, has a right to his aliquot share of God-given land.73 Actually, however, since “society” does not exist as an entity, it is impossible for each individual to translate his theoretical aliquot right into real ownership.74 Therefore, the ownership of the property devolves, not on “everybody,” but on the government, or on those individuals whom it specially privileges.

• 72Inevitably, someone will point to the plight of the railroad or highway company that must pay “extortionate rates” to the man who “merely” owns the property along the way. Yet these same people do not complain (and properly so) of the fact that property values have enormously increased in downtown areas of cities, thus benefiting someone who “merely” happens to own them. The fact is that all property is available to everyone who finds or buys it; if the property owner in these cases is penalized because of his speculation, then all entrepreneurs must be penalized for their correct forecasting of future events. Furthermore, economic progress imputes gains to original factors—land and labor. To render land artificially cheap is to lead to its overuse, and the government is then actually imposing a maximum price on the land in question.
• 73Except that the eminent-domain thesis is on even shakier ground, since the Georgists at least exempt or try to exempt from the social claim the improvements that the owner has made.
• 74See below on the myth of public ownership. As Benjamin R. Tucker pointed out years ago, the Georgist “equal rights” thesis (or eminent domain) leads logically, not to a Single Tax, but to each individual’s right to appropriate his theoretical share of the value of everybody else’s land. The State’s appropriation of this value then becomes sheer robbery of the other individual claims rather than of just the claim of the landowner. See Benjamin R. Tucker, Individual Liberty (New York: Vanguard Press, 1926), pp. 241–42.

Because it is illegal, bribery of government officials receives practically no mention in economic works. Economic science, however, should analyze all aspects of mutual exchange, whether these exchanges are legal or illegal. We have seen above that “bribery” of a private firm is not actually bribery at all, but simply payment of the market price for the product. Bribery of government officials is also a price for the payment of a service. What is this service? It is the failure to enforce the government edict as it applies to the particular person paying the bribe. In short, the acceptance of a bribe is equivalent to the sale of permission to engage in a certain line of business. Acceptance of a bribe is therefore praxeologically identical with the sale of a government license to engage in a business or occupation. And the economic effects are similar to those of a license. There is no economic difference between the purchase of a government permission to operate by buying a license or by paying government officials informally. What the briber receives, therefore, is an informal, oral license to operate. The fact that different government officials receive the money in the two cases is irrelevant to our discussion.

The extent to which an informal license acts as a grant of monopolistic privilege depends on the conditions under which it is granted. In some instances, the official accepts a bribe by one person and in effect grants him a monopoly in a particular area or occupation; in other cases, the official may grant the informal license to anybody who is willing to pay the necessary price. The former is an example of a clear monopoly grant followed by a possible monopoly price; in the latter case, the bribe acts as a lump-sum tax penalizing poorer competitors who cannot pay. They are forced out of business by the bribe system. However, we must remember that bribery is a consequence of the outlawing of a certain line of production and, therefore, that it serves to mitigate some of the loss of utility imposed on consumers and producers by the government prohibition. Given the state of outlawry, bribery is the chief means for the market to reassert itself; bribery moves the economy closer to the free-market situation.75

In fact, we must distinguish between an invasive bribe and a defensive bribe. The defensive bribe is what we have been discussing; that is, the purchase of a permission to operate after an activity is outlawed. On the other hand, a bribe to attain an exclusive or quasi-exclusive permission, barring others from the field, is an example of an invasive bribe, a payment for a grant of monopolistic privilege. The former is a significant movement toward the free market; the latter is a movement away from it.

• 75The same is true of an official license: a firm’s payment for a license is the only means for it to exist. A licensed firm cannot be stamped as a willing party to the monopolistic privilege unless it had helped to lobby for the licensing law’s establishment or continuance, as very often happens.

Economic historians often inquire about the extent and importance of monopoly in the economy. Almost all of this inquiry has been misdirected, because the concept of monopoly has never been cogently defined. In this chapter we have traced types of monopoly and quasi monopoly and their economic effects. It is clear that the term “monopoly” properly applies only to governmental grants of privilege, direct and indirect. Truly gauging the extent of monopoly in an economy means studying the degree and extent of monopoly and quasi-monopoly privilege that the government has granted.

American opinion has been traditionally “antimonopoly.” Yet it is clearly not only pointless but deeply ironic to call upon the government to “pursue a positive antimonopoly policy.” Evidently, all that is necessary to abolish monopoly is that the government abolish its own creations.

It is certainly true that in many (if not all) cases the privileged businesses or laborers had themselves agitated for the monopolistic grant. But it is still true that they could not become quasi monopolists except through the intervention of the State; it is therefore the action of the State that must bear prime responsibility.76

Finally, the question may be raised: Are corporations themselves mere grants of monopoly privilege? Some advocates of the free market were persuaded to accept this view by Walter Lippmann’s The Good Society.77 It should be clear from previous discussion, however, that corporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such men would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. It then rests with the sellers and lenders to this corporation to decide whether or not they will transact business with it. If they do, then they proceed at their own risk. Thus, the government does not grant corporations a privilege of limited liability; anything announced and freely contracted for in advance is a right of a free individual, not a special privilege. It is not necessary that governments grant charters to corporations.78

• 76Historians, however, will go sadly astray if they ignore the monopolistic motivation for passage of such measures by the State. Historians who are in favor of the free market often neglect this problem and thus leave themselves wide open to opposition charges that they are “apologists for monopoly capital.” Actually, of course, advocates of the free market are “probusiness,” as they are pro any voluntary relationship, only when it is carried on in the free market. They oppose governmental grants of monopolistic privilege to businesses or others, for to this extent business is no longer free, but a partner of the coercive State. On business responsibility for interventions generally thought to be “antibusiness,” see Gabriel Kolko, The Triumph of Conservatism (Glencoe, Ill.: The Free Press, 1963), and idem, Railroads and Regulations, 1877–1916 (Princeton: Princeton University Press, 1965). See also James Weinstein, The Corporate Ideal in the Liberal State: 1900–1918 (Boston: Beacon Press, 1968).
• 77Walter Lippmann, The Good Society (3rd ed.; New York: Grosset and Dunlap, 1943), pp. 277 ff.
• 78It is true that limited liability for torts is the illegitimate conferring of a special privilege, but this does not loom large among the total liabilities of any corporation.

The common, erroneous phrasing of Gresham’s Law (“bad money drives out good money”) has often been used to attack the concept of private coinage as unworkable and thereby to defend the State’s age-old monopolization of the minting business. As we have seen, however, Gresham’s Law applies to the effect of government policy, not to the free market.

The argument most often advanced against private coinage is that the public would be burdened by fraudulent coin and would be forced to test coins frequently for their weight and fineness. The government’s stamp on the coin is supposed to certify its fineness and weight. The long record of the abuse of this certification by governments is well known. Moreover, the argument is hardly unique to the minting business; it proves far too much. In the first place, those minters who fraudulently certify the weight or fineness of coins will be prosecuted for fraud, just as defrauders are prosecuted now. Those who counterfeit the certifications of well-established private minters will meet a fate similar to those who counterfeit money today. Numerous products of business depend upon their weight and purity. People will either safeguard their wealth by testing the weight and purity of their coins, as they do their money bullion, or they will mint their coins with private minters who have established a reputation for probity and efficiency. These minters will place their stamps on the coins, and the best minters will soon come into prominence as coiners and as assayers of previously minted coins. Thus, ordinary prudence, the development of good will toward honest and efficient business firms, and legal prosecutions against fraud and counterfeiting would suffice to establish an orderly monetary system. There are numerous industries where the use of instruments of precise weight and fineness are essential and where a mistake would be of greater import than an error involving coins. Yet prudence and the process of market selection of the best firms, coupled with legal prosecution against fraud, have facilitated the purchase and use of the most delicate machine-tools, for example, without any suggestion that the government must nationalize the machine-tool industry in order to ensure the quality of the products.

Another argument against private coinage is that standardizing the denominations of coin is more convenient than permitting the diversity of coins that would ensue under a free system. The answer is that if the market finds standardization more convenient, private mints will be led by consumer demand to confine their minting to certain standard denominations. On the other hand, if greater variety is preferred, consumers will demand and obtain a more diverse range of coins. Under the government mintage monopoly, the desires of consumers for various denominations are ignored, and the standardization is compulsory rather than in accord with public demand.79

• 79See Herbert Spencer, Social Statics (New York: D. Appleton, 1890), pp. 438–39. For historical examples of successful private coinage, see B.W. Barnard, “The Use of Private Tokens for Money in the United States,” Quarterly Journal of Economics, 1916–17, pp. 617–26; Charles A. Conant, The Principles of Money and Banking (New York: Harper & Bros., 1905), I, 127–32; and Lysander Spooner, A Letter to Grover Cleveland (Boston: Benjamin R. Tucker, 1886), p. 79.

Tariffs and immigration barriers as a cause of war may be thought far afield from our study, but actually this relationship may be analyzed praxeologically. A tariff imposed by Government A prevents an exporter residing under Government B from making a sale. Furthermore, an immigration barrier imposed by Government A prevents a resident of B from migrating. Both of these impositions are effected by coercion. Tariffs as a prelude to war have often been discussed; less understood is the Lebensraum argument. “Overpopulation” of one particular country (insofar as it is not the result of a voluntary choice to remain in the homeland at the cost of a lower standard of living) is always the result of an immigration barrier imposed by another country. It may be thought that this barrier is purely a “domestic” one. But is it? By what right does the government of a territory proclaim the power to keep other people away? Under a purely free-market system, only individual property owners have the right to keep people off their property. The government’s power rests on the implicit assumption that the government owns all the territory that it rules. Only then can the government keep people out of that territory.

Caught in an insoluble contradiction are those believers in the free market and private property who still uphold immigration barriers. They can do so only if they concede that the State is the owner of all property, but in that case they cannot have true private property in their system at all. In a truly free-market system, such as we have outlined above, only first cultivators would have title to unowned property; property that has never been used would remain unowned until someone used it. At present, the State owns all unused property, but it is clear that this is conquest incompatible with the free market. In a truly free market, for example, it would be inconceivable that an Australian agency could arise, laying claim to “ownership” over the vast tracts of unused land on that continent and using force to prevent people from other areas from entering and cultivating that land. It would also be inconceivable that a State could keep people from other areas out of property that the “domestic” property owner wishes them to use. No one but the individual property owner himself would have sovereignty over a piece of property.