Power & Market

COIN+TELPRO was a series of illegal operations conducted by the FBI between 1956-1971, to disrupt, discredit and neutralise anyone considered a threat to national security, including members of the Women’s Liberation Movement and even the Boy Scouts of America.

And it wasn't just the customary wiretapping, infiltration and media manipulation, the FBI committed blackmail and murder.

In the 1960’s a Washington Post expose by army intelligence whistle-blower, Christopher Pyle, revealed a massive surveillance operation run by the Army, called CONUS Intel. It involved thousands of undercover military agents infiltrating and spying on virtually everybody active on what they deemed ‘civil disturbances.’ It turns out, many of those targeted had done nothing even remotely subversive, unless you consider attending a left-wing college presentation or church meeting, revolutionary.

These programs came to a head in the 1970’s, when an investigation by the US Senate, conducted by the Church Committee, uncovered decades of serious, systemic abuse by the CIA. As if predicting the internet as an instrument for mass surveillance, Senator Frank Church warned that the NSA's capabilities could "at any time could be turned around on the American people."

USAGM

Before the internet, the deployment of PSYOPS was limited to legacy media and permitted only on foreign soil. But that all changed in 2013, when the government granted themselves permission to target ordinary Americans.

Conceived at the end of the cold war as the Broadcasting Board of Governors, USAGM is a lesser-known government agency charged with broadcasting thousands of weekly hours of US propaganda to foreign audiences, that has played a major role in pushing pro-American stories to former Soviet Bloc countries ever since Perestroika.

For decades an anti-propaganda law, known as the Smith-Mundt Act, made it illegal for the government to conduct PSYOPS against US citizens. But that all changed in 2013 when the National Defence Authorization Act repealed that law and granted USAGM a licence to broadcast pro-government propaganda inside the United States.

To what extent US citizens are being targeted by propaganda is anyone's guess, since PSYOPS largely take place online, where it's difficult to distinguish between foreign and domestic audiences.

What we do know is that in 2009 the military budget for winning hearts and minds at home and abroad had grown by 63% to $4.7 billion annually. At that time the Pentagon accounted for more than half the Federal Government's $1 billion PR Budget.

An Associated Press (AP) investigation in 2016 revealed that the Pentagon employed a staggering 40% of the 5,000 working in the Federal Government's PR machines, with the Department of Defence, far and wide, the largest and most expensive PR operation of the United States government.

The Facebook’s-Intelligence-Harvard Connection

Consistent with the opaque nature of Facebook's origins, shortly after its launch in 2014, co-founders Mark Zuckerberg and Dustin Moskovitz brought Napster founder Sean Parker on board. At the age of 16, Parker hacked into the network of a Fortune 500 company and was later arrested and charged by the FBI. Around this time Parker was recruited by the CIA.

To what end, we don’t know.

What we do know is that Parker brought Peter Thiel to Facebook as its first outside investor. Theil, who remains on Facebook’s board, also sits on the Steering Committee of globalist think tank, the Bilderberg Group. As previously stated, Thiel is the founder of Palantir, the spooky intelligence firm pretending to be a private company.

The CIA would acquire an equity stake in the firm through their venture capital arm, In-Q-Tel. At the time of his first meetings with Facebook, Theil had been working on resurrecting several controversial DARPA programs.

Which begs the question: With intelligence assets embedded in Facebook's management structure from the get-go, is everything as it seems at 1 Hacker Way?

According to Lauren Smith, writing for Wrong Kind of Green:

“Some of Facebook’s allure to users is that Mark Zuckerberg and his friends started the company from a Harvard dorm room and that he remains the chairman and chief operating officer. If he didn’t exist, he would need to be invented by Facebook’s marketing department.”

By the same token, if Facebook didn't exist it would need to be invented by the Pentagon.

To achieve this, you would need to embed government officials in Facebook's leadership and governance. Cherry picking your candidates from, say, the US Department of Treasury, and launching the platform from an academic institution, Harvard University, for example.

According to the official record, Zuckerberg built the first version of Facebook at Harvard in 2004. Like J.C.R Licklider before him, he was a psychology major.

Harvard's President at that time was economist Lawrence Summers, a career public servant who served as Chief Economist at the World Bank, Secretary of the Treasury under the Clinton Administration, and 8th Director of the National Economic Council.

Now here's where it gets interesting. Summers' protege, Sheryl Sandberg, is Facebook’s COO since 2008. Sandberg was at the dials during the Cambridge Analytica scandal, and predictably, manages Facebook’s Washington relationships. Before Facebook, Sandberg served as Chief of Staff at the Treasury under Summers and began her career as an economist, also under Summer, at the World Bank.

Another Summers-Harvard-Treasury connection is Facebook’s Board Member, Nancy Killefer, who served under Summers as CFO at the Treasury Department.

It doesn’t end there. Facebook’s Chief Business Officer, Marne Levine also served under Summers at the Department of Treasury, National Economic Council and Harvard University.

The CIA connection is Robert M. Kimmett. According to West Point, Kimmett “has contributed significantly to our nation’s security…seamlessly blending the roles of soldier, statesman and businessman. In addition to serving on Facebook's board of Directors, Kimmett is a National Security Adviser to the CIA, and the recipient of the CIA Director’s Award.

The icing on the cake, however, is former DAPRA Director, Regina Dugan, who joined Facebook’s hardware lab, Building 8, in 2016, to roll out a number of mysterious DARPA funded-projects to, essentially, hack people’s minds with brain-computer interfaces.

As luck would have it, just before Duggan’s arrival at Facebook, the social media giant orchestrated the controversial mood manipulation PSYOP, known as the Social Contagion Study. The experiment would anticipate the role social media went onto play during the pandemic.

In the study, Facebook manipulated the posts of 700,000 unsuspecting Facebook users to determine the extent to which emotional states can be transmitted across social media. To achieve this, they altered the news feed content of users to control the number of posts that contained positive or negative charged emotions. As you would expect, the findings of the study revealed that negative feeds caused users to make negative posts, whereas positive feeds resulted in users making positive posts.

Once we understand this, it becomes clear how fear of a disease, which predominantly targeted people beyond life expectancy spread like wildfire in the wake of the Wuhan Virus. In locking down the UK, Boris Johnson warned the British public that we would all lose family members to the disease. When nothing could be further from the truth. The pandemic largely happened in the flawed doomsday modelling of epidemiologists, it happened across the corporate media, and it happened on social media platforms like Facebook. It wasn’t so much a pandemic, but the social contagion experiment playing out in real time.

But there was more than just social media manipulating our emotional states, fear, shame, and scapegoating was fife throughout as the British government deployed behavioural economics to, essentially, nudge the public towards compliance.

Launched under David Cameron's Government, the Behavioural Insights Team (BIT), (affectionately known as the Nudge Unit), are a team of crack psychologists and career civil servants tasked with positively influencing appropriate behaviour with tiny changes.

But according to whose measure of appropriate behaviour, exactly?

A clue lies in the fact that BIT was directed by Sir Mark Sedwill during the first lockdown. He’s one of Britain’s most senior national security advisors with links to M15 and MI6.

That’s an intelligence operative ruling by psychological manipulation. Though we are led to believe, in a democracy the government is an agency of the people, given force of law by the will of the people.

But what happens when our consent is manipulated by those in power?

One consequence is that the foxes take charge of the chicken coop. Another is that we begin to see drastic changes to the constitutional landscape. Politicians acquire impunity from public scrutiny and an entire nation is kept under house arrest.

But this demonisation of the masses is also the backwash of a protracted counterinsurgency crusade waged on ordinary people. When the Berlin wall came down in the nineties and decades of counterinsurgency was rendered obsolete, the battlelines moved from East to the West, from the Soviets to the lower orders of society. The mythos of communist infiltration, that gave rise to the threat of terrorism, is the ancestor of today’s biosecurity state. A government that tightens its grip, using fear of a common enemy, will find no shortage of common enemies, to continue tightening its grip.

From Green Pass to Digital Nexus

Strong-arming the world’s population under the rubric of biosecurity would not have been possible without the internet, and if the expulsion of the military and intelligence community from academic institutions in the 1960's had not resulted in the creation of Silicon Valley, they would not have acquired total information awareness, the precursor to the Green Pass.

But this formidable goal also caused the US to morph into the opponent it had been fighting during the cold war, as predicted by public intellectuals in the 1960s.

And so, with an annual budget of $750 billion and 23,000 military and civilian personnel in their employment, the Pentagon failed to denounce what many armchair researchers called out in the early days of the pandemic. That a global coup was underway was patently obvious, as crisis actors played dead in Wuhan, China.

Instead, those charged with protecting the west from Soviet-style putsch failed to apprehend it happening right under their noses. It's not so much that they were caught with their trousers down, it’s that they aided and abetted the coop. Years of fighting a statist, expansionist adversary, caused the intelligence state to mutate into their nemesis, namely China.

It is uncanny that the country with the worst human rights record on earth became the global pacemaker for lockdowns, as western democracies exonerated their existential threat and bowed to China’s distinct brand of tyranny.

As a result, the big tech data analytics pioneered by Silicon Valley luminaries, that was road tested in China, finally landed on the shorelines of western democracies.

And in an ironic twist of fate, the intelligence state created at the end of world war II, under the National Security Act, conceived the very corporations that would bring about the end of constitutional democracy, that would author a new bill of rights from their own community standards de jour, and that would shift us from sovereign nation states to global governance, into the collectivist future the Pentagon had been charged with protecting us from.

As Goethe quote goes ‘None are more hopelessly enslaved than those who falsely believe they are free.’ Namely, anyone still looking through rose-tinted lenses in the digital age, oblivious to the fact they are victims of systematic addiction. The bread and circuses of the internet influences the same dopamine rewards centres and neural circuitry motivators as slot machines, cigarettes, and cocaine, as was originally intended by psychologists like JCR Licklider, at the helm of this new technology that would exploit basic vulnerabilities in the human psyche.

As we descend further into the maelstrom of the digital age, the algorithms will get smarter, the psychological drivers will become more persuasive and digital rubric will become more real. Until eventually we will lose touch with reality altogether. But don't worry, this war of attrition is happening in conjunction with the roll out of new software and devices, and most will be too busy building their digital avatars or dissenting on social media to know any better.

As the digital revolution was underway in the mid-nineties, research departments at the CIA and NSA were developing programs to predict the usefulness of the world wide web as a tool for capturing what they dubbed “birds of a feather” formations. That's when flocks of sparrows make sudden movements together in rhythmical patterns.

They were particularly interested in how these principles would influence the way that people would eventually move together on the burgeoning internet: Would groups and communities move together in the same way as ‘birds of a feather, so that they could be tracked in an organised way? And if their movements could be indexed and recorded, could they be identified later by their digital fingerprints?

To answer these questions, the CIA and NSA established a series of initiatives called Massive Digital Data Systems (MDDS) to directly fund tech entrepreneurs through an inter-university disbursement program. Naming their first unclassified briefing for computer scientists ‘birds of a feather,’ which took place in San Jose in the spring of 1995.

Amongst the first grants provided by the MDDS program to capture the ‘birds of a feather’ theory towards building a massive digital library and indexing system - using the internet as its backbone - were dispersed to two Stanford University PHD’s, Sergey Brin and Larry Page, who were making significant headways in the development of web-page ranking technology that would track user movements online.

Those disbursements, together with $4.5 million in grants from a multi-agency consortium including NASA and DARPA, became the seed funding that was used to establish Google

Eventually MDDS was integrated into DARPA’s global eavesdropping and data-mining activities that would attempt total information awareness over US citizens. Few understand the extent to which Silicon Valley is the alter-ego of Pentagon-land, even fewer realise the impact this has had on the social sphere. But the story does not begin with Google, nor the military origins of the internet, it goes back much further in time, to the dawn of counterinsurgency and PSYOPs during the second world war.

The Dawn of PSYOPs

According to historian Joy Rhodes, a renowned physicist told U.S. defense secretary Robert McNamara in 1961:

“While World War I might have been considered the chemists’ war, and World War II was considered the physicists’ war, World War III . . . might well have to be considered the social scientists’ war.”

The intersection of social science and military intelligence is recognised by the US Army to have begun during WW1 when pre-war journalist Captain Blankenhorn established the Psychological Subsection in the War Department to coordinate combat propaganda.

These grey-area operations, as they become known, plateaued during world war II, when military strategists, building on wartime research in crowd psychology, drafted social scientists into the war effort through the Office of Scientific Research and Development (OSRD). The office would aggregate information about the German people and develop propaganda and psychological operations (PSYOPS) to lower their morale. This culminated in 1942, with the US federal government becoming the leading employer of psychologists in the US.

OSRD was an early administration of the Manhattan Project and responsible for important wartime developments in technology, including radar. The agency was Directed by engineer and inventor, Vannevar Bush - a key player in the history of computing, known for his work on The Memex, an early hypothetical computer device, that would store and index a user’s books, records and other information, and which would go on to inspire most major advancements in the development of personal computers over the next 70 years.

As the second world war ended and a new threat emerged from post war ravaged Europe, scholars and soldiers once again reunited to defeat an invisible and aggressively expansionist adversary.

Across the Soviet satellites in Europe and in the nations threatened by communism in Asia, Africa, and Latin America, cold war special operations, as they become known, were a nebulous category of military activity that included psychological and political warfare, guerrilla operations and counterinsurgency. To mobilise these ‘special warfare tactics’ the army established the Office of the Chief of Psychological Warfare (OCPW) in 1951, whose mission was to recruit, organise, equip, train, and provide doctrinal support to Psywarriors.

The office was directed by General Robert McClure, a founding father of psychological warfare and friend of the Shah of Iran, who was instrumental in the overthrow of Mohammad Mosaddegh in the 1953 Iranian coup d’état.

Integral to the projects of McClure’s OCPW, was a quasi-academic institution with a long history of military service called the Human Relations Area Files (HRAF). Founded by anthropologist turned FBI whistle-blower George Murdock, HRAF was set up to collect and standardise data on primitive cultures around the world. During WW2 its researchers worked hand in glove with naval intelligence to develop propaganda materials that would help the US liberate pacific nations from Japanese control. By 1954, the department had grown into an inter-university consortium of 16 academic institutions, funded by the army, CIA, and private philanthropies.

In 1954 the OCPW negotiated a contract with the HRAF to author a series of special warfare handbooks, disguised as scholarship, that sought to understand the intellectual and emotional character of strategically important people, particularly their thoughts, motivations and actions, with entire chapters compiled on the attitudes and subversive personality traits of foreign nationals, while other chapters focussed on the means of transmitting propaganda in each target nation, whether news, radio or word of mouth. This was, of course, decades before the internet.

SORO

In 1956, the Special Operations Research Office (SORO) emerged from these programs. Charged with managing the US Army’s psychological and unconventional warfare tactics during the cold war and taking the work of HRAF to the next level, SORO set about the monumental task of defining the political and social causes of Communist revolution, the laws governing social change and the theories of communication and persuasion that could be used to transform public perception.

SORO formed a central component of the Pentagons militarisation of social research, and particularly the ideas and doctrine that would usher in a gradual shift towards an American-led world order. Its research team was located on the campus of American University in Washington, D.C, and comprised the era’s pre-eminent intellectuals and academics. SORO’s ensemble team, from the fields of psychology, sociology and anthropology, would immerse themselves in social system theory, analysing the society and culture of numerous target countries, particularly in Latin America, while confronting the universal laws governing social behaviour and the mechanisms of communication and persuasion in each jurisdiction. If the US Army could understand the psychological factors that sparked revolution, they could, in theory, predict and intercept revolutions before they got off the ground.

SORO was part of a rapidly expanding nexus of federally Funded Research Centres (FCRC’s), that reoriented academia towards national security interests. Working at the intersection of science and the state, SORON’s, as they were known, advocated for an expert-directed democracy, regardless of the totalitarian consequences of social engineers and technocrats acquiring control over the thoughts, actions, and values of ordinary people.

In those early days of the cold war, academics and scientists working at the intersection of military and academia firmly believed that intellectuals should guide geopolitics. This was accepted as the most stable form of governance to take the free world into the next century. It explains how we have arrived under the rubric of the ‘settled science’ today. Or at least, policies masquerading as science. From the biosecurity state to the fundamentalism of climate science, much of what was achieved in those golden years of militarised social research shapes the twenty first century.

By 1962, sixty-six federally funded military research institutions were in operation. Between 1951 to 1967, the number tripled, while funding skyrocketed from $122 million to $1.6 billion.

But as opposition to the Vietnam War intensified in the 1960s, a growing number of intellectuals, policymakers and academics became increasingly concerned that the national security state was morphing into the statist, globalist force it had been fighting during the cold war and began publicly criticising Pentagon-funded social scientists as technocratic social engineers.

This inspired a wave of discontent for the militarisation of social research to grip America, culminating in 1969 with American University’s administrators banishing SORO from their campus and severing ties with their military partners. The move was endemic of the changing attitude towards these grey area special operations and resulted in the 1960’s and 1970’s with the excommunication of military research centres from university campuses across the US. A move that forced the military to look elsewhere - towards the private sector for their alternative warfare capabilities. Following a long tradition of public-private military cooperation, from the Rand Corporation to the Smithsonian Group, these quasi-private institutions were being spun-out of the military at a rate of knots since the 1940’s.

Project Camelot

One of the programs conceived by SORO was ‘Methods for Predicting and Influencing Social Change and Internal War Potential. Codenamed Project Camelot, the landmark program sought to understand the causes of social revolution and identify actions, within the realm of behavioural science, that could be taken to suppress insurrection. The goal, according to defence analyst, Joy Rhodes, was 'to build a radar system for left wing revolutionaries.' A sort of ‘computerised early warning system that could predict and prevent political movements before they ever got off the ground.’

‘This computer system’ writes Joy Rhodes, ‘could check up to date intelligence against a list of preconditions, and revolutions could be stopped before the instigators even knew they were headed down the path of revolution.’

The research collected by Project Camelot would produce predictive models of the revolutionary process and profile what social scientists deemed ‘revolutionary tendencies and traits.’ It was anticipated that such knowledge would not only help military leaders anticipate the trajectory of social change, but it would also enable them to design effective interventions that could, in theory, channel or suppress change in ways that were favourable to U.S. foreign policy interests.

It was intended that the information gathered by Project Camelot would funnel into a large ‘computerised database’ for forecasting, social engineering, and counterinsurgency, that could be tapped at any time by the military and intelligence community.

But the project was beleaguered by controversy when academics in South America discovered its military funding and imperialism motives.

The ensuing backlash resulted in Project Camelot being, ostensibly, shut down, though the core of its project survived.

Multiple military research projects picked up on Project Camelot’s ‘early warning radar system for left wing revolutionaries,’ while its computerised database for ‘forecasting, social engineering, and counterinsurgency’ went onto inspire a nascent technology that would be developed in the years to come, that would eventually become known to the world as the internet.

Changes often induce fear--including the fear that some aspect of our current well-being will be eroded due to changes that could take place in markets. For instance, the invention of a lower cost way of providing a service I now offer could lower what I now earn. The potential that we might be harmed by such changes can make us very risk averse.

However, without change, there can be no new ideas, no innovations, no improvement, no growth. So trying to stop threatening changes to lock in our well-being in our current circumstances can turn us into modern day Luddites. But that undermines the process that has provided most of the benefits we have come to enjoy--all of which required improvements in our options--and which will benefit us in the future as well, providing that all arrangements are voluntary, increasing our economic security.

Such fear is a major motive force behind all forms of protectionism--against domestic rivals, international rivals, potential entrants to our industry, potential new ways of doing things, new techniques, new products, etc. We are all subject to the lure of limiting others’ rights and freedoms to lock in our current advantages.

However, that would be unjust. Allowing some to pre-empt others’ rights would also make every one of us who would ever be such an “other” worse off, since it would undermine the crucial protections offered by property rights--when property rights are enforced, exchanges must be voluntary to all those whose rights are involved.

Leonard Read compared the results of freeing people to seek out and offer every improvement they can in willing arrangements versus trying to freeze out such potential improvements, in his “Harmonizing to Each His Own,” in his 1972 To Free or Freeze: That is the Question. And unlike all the government favor seekers in the world, who as Henry Hazlitt put it, hire “the best buyable minds” to argue that those favors for them at others’ expense are good for all of us, Read laid out why freedom for all, subject to the need to respect others’ rights, is better than favor seeking by all, a melee for who can “win” the competition to restrict others more than they can restrict you. On the 50-year anniversary of Read’s book, consider some of the wisdom we can glean on the subject.

Man could not live, let alone improve his lot, were all static…Change releases the hidden strength of men. Out of change comes variation and in this diversity are unique potentialities realized. Creative dissimilarities emerge and account for our moral, spiritual, intellectual, and material wealth. Change is of the very essence of life, and freedom to change is both an economic and a biologic necessity.

[However] most persons tend to dislike it…inevitable and necessary but, nonetheless, much resented. This feature of human nature…substantially accounts for the continuing debate over freedom versus coercive collectivism.

The main reason for resenting change…originates in a misunderstanding of how security is best obtained.

Individuals, with rare exceptions, are interested first and foremost in securing life and livelihood. Security is indeed an objective but, contrary to general belief, it is never more than a dividend of natural change and variation--each pursuing his own uniqueness. There is no security to be found in bringing change and variation to a halt; nothing is so at odds with security as freezing…the status quo.

Seek first security and there will be neither security nor change. Seek first the dynamic, improving life and such security as is possible is thrown in as a rewarding outcome.

However, to many, allowing each of us the freedom to direct our own creative and value-creating efforts sounds like chaos, which requires someone to be in charge to prevent feared meltdown, when it is actually a means to mutually beneficial harmony.

[There have been] countless attempts at harmonizing our variations…Not only is there myself to cope with: to grow, emerge, evolve, to become what I am not yet; equally challenging, I must find out how to live in harmony with my fellowmen. My life and welfare depend not only on what I make of me but also on how I associate myself with others upon whom I am also rigorously dependent, a dependence from which there is no escape. Except in association, I perish!

There are, broadly, two opposed theories as to how the sociological maelstrom should be resolved. The first--authoritarian--is steeped in tradition, as aged as humanity, and presently gaining ground all over the world. It is the old, old master-slave arrangement that has always stifled human progress and diverted man’s efforts to fighting, either to force his will on others or to combat the tyrant’s army. The second--freedom--is brand new as history goes, all too seldom understood or accepted.

The authoritarian vision is limited and blurred at best.

What then must be the outcome of the authoritarian’s solution to social problems, assuming that his will is invoked? Simple: all of us compelled to abide by what he sees…which, of course, is next to nothing. All of us, if his will prevails, restricted by his oblique view of reality.

Here, Read makes sure we realize the cost of authoritarian “solutions,” is far greater than any imagined benefit.

All that is good--no exception--springs from creative human energy obeying its nature, that is, freely flowing when not squelched.

Only a person deficient in reasoning powers…could possibly believe that any scheme can “bring us out where we want to be.” This is an I posing as we--absurd! The flowering society, the only kind that merits our interest, is one that will not stand in the way of bringing you out where you want to be, while permitting the same opportunities for everyone else. And this is definitely a prospect when millions--yes, trillions--of decisions are made independently of each other, that is, a situation in which freedom of choice prevails.

Instead of chaos there is order and stability--an incomprehensible harmony.

What at first blush appears as utter chaos…turns out to be precisely the opposite: a harmonic whole in the absence of I’s trying to play we. You to your knitting, me to mine, each pursuing his unique potential…For only in this manner am I able to draw on your and everyone else’s unique realizations, others possessing countless ideas, enlightenments, goods, services hardly any one of which is within my own potential. When freedom prevails, we can think of our situation as a vast human grid, supplies responding to demands in a perpetual willing exchange. A harmonizing of to each his own!

Finally, Leonard Read reminds us that understanding freedom provides cognitive therapy for the unfounded fear of change that leads to support for usurpers of freedom whose insufficient abilities (despite their delusions of competence) actually harm us all.

We need only know that freedom does work wonders--the evidence is commonplace and all about us--and that freedom exists in the absence of man-concocted restraints against the release of creative energy. And observe how simple--and realistic--this is: it does not presuppose a single know-it-all!

Commonly, in Industrial Organization college classes it is taught how the market may end up having a non-efficient or non-competitive outcome. For example, a firm taking most of a market, which is considered to be a non-efficient outcome because the firm has power to cut the so-called “consumer surplus” and expand their “producer surplus”. Making decisions based on these “surpluses” is problematic because there is no measure of the value a consumer attaches to a certain object. (1) The level of assumptions needed to make these calculations takes the mainstream line of economics further from reality. Usually, the kind of solution proposed by these economists for non-efficient outcomes is regulating the market, to protect the consumer, and “guarantee efficiency and competition”.

These ever-growing regulations on the markets of different industries tend to reduce competition, acting a barrier of entry for new firms. As Mises put it:

            “[…] today taxes (regulations) often absorb the greater part of the newcomer's “excessive” profits. He cannot accumulate capital; he cannot expand his own business; he will never become big business and a match for the vested interests. The old firms do not need to fear his competition; they are sheltered by the tax collector.” (2) (Parenthesis added).

This statement does not only apply to taxes, but also to regulations: as a market becomes more regulated, firms will have to spend more time, money and resources complying with these new regulations. Adding more regulations to an industry is then, a way of taxing that industry, because the firms’ excessive profits will be diminished by having to comply with the new regulations.

So-called “experts” will try to sell their initiatives as scientific, exact, and fine-tuned actions, that will have zero external effects, experience has taught us how this is not true, multiple times. Mainstream-line economists tend not to take the regulatory costs mentioned above into account: as government officials, they don’t usually consider the complete range of effects that their actions have, something that was signaled by Bastiat centuries ago, yet we’re still fighting with it.

How, then, does this restrict competition?

When an industry becomes over-regulated, which is the case for most industries that reach millions of consumers, the costs of complying with the regulations already in place for newcomers becomes enormous. Therefore, the regulatory costs imposed on the firms is big enough to act as a barrier of entry: the initial investment is higher than it would’ve been in the absence of the regulations, which seriously affects the profitability of lots of firms.

For already established firms, which have a good portion of the industry’s market share, these regulations come at a relatively low cost: they’ve already accumulated capital before the regulations were in place, and so these new regulations would have a small negative effect on their financial statements. The opposite happens for newcomers: they practically don’t have a market share, as they just got into the industry, so the regulatory compliance will be a relatively high portion of their overall costs, eating up the profitability of the firm.

The overall result of this is the following: existing firms will have a more protected position, as the possibility of having new competitors is reduced. If the uncertainty of their position in the market is small enough, they’ll stop worrying about the customers, and will tend to stick to the minimum standards established by the regulations: The industry’s market would be de facto managed by the government, as it has created monopolies by putting up barriers of entry, and if any new changes happen in these industries, it’s going to happen via government mandates.

The next time you listen to a politician proposing a bill or initiative to “protect the consumer”, think about the “unseen”, and be skeptical about the outcomes they promise. Regulations to make markets “better” act as barriers of entry for new firms. These have destroyed competition in the last century, as the size and scope of government bureaucracy has expanded beyond the limits anyone could have imagined. We’re on our way to a state-run economy, just like Mises said on his famous text “The Middle of the Road Leads to Socialism”. (3)

(1) Rothbard, M. 1962. Man, Economy and State. Chapter 4: Prices and Consumption. Part 4: The Gains from Exchange.

(2) Von Mises, L. 1966. Human Action: A treatise on economics. Chapter XXII: Confiscation and Redistribution.

(3) Von Mises, L. 1952. The Middle of the Road Leads to Socialism. Planning for Freedom and Sixteen other Essays and Addresses.