5. Review of Lawrence Abbott, Quality and Competition and Anthony Scott, Natural Resources: The Economics of Conservation

5. Review of Lawrence Abbott, Quality and Competition and Anthony Scott, Natural Resources: The Economics of Conservation

July 21, 1958

Mr. Kenneth S. Templeton

William Volker Fund

Dear Ken:

Lawrence Abbott’s Quality and Competition⁴¹ and Anthony Scott’s Natural Resources: The Economics of Conservation⁴² are two of the best economics works I have read in many a year. They are both delightful, and it will be a great day if every book you sent me were of comparable quality.

Abbott’s book is a masterpiece and displays fine theoretical acumen coupled with ability to get down to essentials and avoid all the mathematical mumbo-jumbo—a rarity these days. Abbott attacks neoclassical competition theory in such a way as to bring him very close to the Austrian position without knowing it. Abbott shows that quality competition is not only not a poor substitute for price competition, as modern theorists proclaim, but an essential to what he calls “complete competition,” which combines price and quality competition, so that it is really a deficiency when quality competition is absent. He also follows Hayek and J.M. Clark in stressing competition as a dynamic process and not as a set of static equilibrium conditions. Further, he takes the extremely good step of stressing that the only real block to competition is restraint of the market, rather than “too few firms,” “too large a share of the market,” etc.

He stresses the value for competition of brand names, advertising (to satisfy consumer wants more fully and give them more information), diversity of product. In short, his emphasis is not on some arbitrary concept of “pure” or “perfect” competition, as in the case of most modern theorists (and where diversity, advertising, etc. are considered “monopolistic”), but on free competition, on the freedom of entry into a field or industry and the absence of institutional restraints. Unfortunately, Abbott considers voluntary cartels restraints along with government monopolization and interference, but his attitude is so infinitely better than almost all of his colleagues in the field that there is no point of caviling here.

There are many gems scattered throughout the book. Completely original is Abbott’s ingenious definition of quality competition. Before this, economists, including myself, have thought that theory need not account specially for quality because a different quality good for the same price is equivalent to a different price for the same good. A different quality would, further, be simply treated as a different good for most purposes, as the same good for others. Up till now, no one has been able to distinguish theoretically between a different quality and a different good. Abbott furnishes an excellent distinction based upon the thesis that the same good satisfies the same want, so that there can be quality variations within the same want. This is consonant with the Austrian tradition and is an innovation within it. Further, as Abbott points out, using this stress on class of wants, he can show (in the Austrian tradition) that a greater variety of goods or an increasing standard of living fulfills more wants, or fulfills them with greater precision and accuracy than before. He also distinguishes usefully between “horizontal,” “vertical,” and “innovatory” differences in quality (a “vertical” difference is one that would be agreed upon by everyone—a soap that cleans better, etc.—and a “horizontal” caters to different tastes: different colored ties, etc.)

I am not prepared to say how fruitful Abbott’s distinction will turn out to be, particularly in the development of economic theory, where my hunch is that current Austrianism will do well enough without tacking on Abbott’s “quality models” to the price models of current theory. But this is no matter; the important parts of the book are not the attempt to build up a new equilibrium theory, but in his excellent insights into the nature of competition, his new approach to quality, and his approach to Austrianism in the course of his attack on current fallacies. His attacks on monopolistic and pure competition theory are excellent. His discussion of innovation theory is better than Schumpeter’s. All in all, this is a fine book, and the author is definitely worth pursuing.

Anthony Scott’s book also deserves the warmest praise. Here is a great book on conservation, theoretical and yet covering the crucial factual details for each important country and natural resource. Here is a definitive blast, at long last, at the conservation hokum. Scott shows that there need be no worries, on the free market, about excess depletion, because any resource will be preserved so that its capital value will be taken into consideration, and this will be the capitalized value of expected future returns. Nobody ravages a forest if he also owns that forest and is interested in its capital value. The key then, as Scott sees, is that private ownership should rule in natural resources, for if the resource is unowned, then surely it will be ravaged.

Scott also sees that many current cases of “ravaging” are due to the fact that there is no “unitization” of the resource; i.e., the resource should be owned as a technological unit. This implies first-user ownership, say, of a whole-unit oil pool or fishery. Numerous anticonservation arguments are included. Scott shows that forests should be privately owned; wildlife should be converted into private property, etc.

In practical politics, Scott hints that he would go very slowly, etc., but the whole brunt of his argument really cuts in our favor, even though the volume has all the wariness of conclusion (and the bad writing) of a PhD thesis.

Scott, as the outstanding anticonservationist that I know of, is definitely worth investigating.