XV. The Market (continued)

0:005. Competition. In nature there prevail irreconcilable conflicts of interests. The means of subsistence are scarce. Proliferation tends to outrun subsistence. Only the fittest plants and animals survive. The antagonism between an animal starving to death and another that snatches the food away from it is implacable. Social cooperation under the division of labor removes such antagonisms. It substitutes partnership and mutuality for hostility. The members of society are united in a common venture. The term competition as applied to the conditions of animal life signifies the rivalry between animals which manifests itself in their search for food.

0:53We may call this phenomenon biological competition. Biological competition must not be confused with social competition, that is, the striving of individuals to attain the most favorable position in the system of social cooperation. As there will always be positions which men value more highly than others, people will strive for them and try to outdo rivals. Social competition is consequently present in every conceivable mode of social organization. If we want to think of a state of affairs in which there is no social competition, we must construct the image of a socialist system in which the chief in his endeavors to assign to everybody his place and task in society is not aided by any ambition on the part of his subjects.

1:47The individuals are entirely indifferent and do not apply for special appointments. They behave like the stud horses, which do not try to put themselves in a favorable light when the owner picks out the stallion to impregnate his best brood mare. But such people would no longer be acting men. In a totalitarian system, social competition manifests itself in the endeavors of people to Court the Favor of Those in Power. In the market economy, competition manifests itself in the facts that the sellers must outdo one another by offering better or cheaper goods and services, and that the buyers must outdo one another by offering higher prices.

2:34In dealing with this variety of social competition, which may be called catallactic competition, We must guard ourselves against various popular fallacies. The classical economists favored the abolition of all trade barriers preventing people from competing on the market. Such restrictive laws, they explained, result in shifting production from those places in which natural conditions of production are more favorable to places in which they are less favorable. They protect the less efficient man against his more efficient rival. They tend to perpetuate backward technological methods of production. In short, they curtail production and thus lower the standard of living.

3:22In order to make all people more prosperous, the economists argued, competition should be free to everybody. In this sense, they used the term free competition. There was nothing metaphysical in their employment of the term free. They advocated the nullification of privileges barring people from access to certain trades and markets. All the sophisticated lucabrations cavilling at the metaphysical connotations of the adjective free, as applied to competition, are spurious. They have no reference whatever to the catalactic problem of competition. As far as natural conditions come into play, competition can only be free with regard to those factors of production which are not scarce, and therefore not objects of human action.

4:16In the catallactic field, competition is always restricted by the inexorable scarcity of the economic goods and services. Even in the absence of institutional barriers erected to restrict the number of those competing, The state of affairs is never such as to enable everyone to compete in all sectors of the market. In each sector, only comparatively small groups can engage in competition. Catalactic competition, one of the characteristic features of the market economy, is a social phenomenon. It is not a right, guaranteed by the state and the laws, that would make it possible It is possible for every individual to choose ad libitum, the place in the structure of the division of labor he likes best.

5:05To assign to everybody his proper place in society is the task of the consumers. Their buying and abstention from buying is instrumental in determining each individual's social position. Their supremacy is not impaired by any privileges granted to the individual's qua producers. Entrance into a definite branch of industry is virtually free to newcomers only as far as the consumers approve of this branch's expansion, or as far as the newcomers succeed in supplanting those already occupied in it by filling better or more cheaply the demands of the consumers. Additional investment is reasonable only to the extent that it fills the most urgent among and the not yet satisfied needs of the consumers.

5:58If the existing plants are sufficient, it would be wasteful to invest more capital in the same industry. The structure of market prices pushes the new investors into other branches. It is necessary to emphasize this point because the failure to grasp it is at the root of many popular complaints about the impossibility of competition. Some fifty years ago, people used to declare, You cannot compete with the railroad companies. It is impossible to challenge their position by starting competing lines. In the field of land transportation, there is no longer competition. The truth was that at that time, the already operating lines were by and large sufficient.

6:46For additional capital investment, the prospects were more favorable in improving the serviceableness of the already operating lines, and in other branches of business than in the construction of new railroads. However, this did not interfere with further technological progress in transportation technique. The bigness and the economic power of the railroad companies did not impede the emergence of the motor car and the airplane. Today people assert the same with regard to various branches of big business. You cannot challenge their position. They are too big and too powerful. But competition does not mean that anybody can prosper by simply imitating what other people do.

7:33It means the opportunity to serve the consumers in a better or cheaper way without being restrained by privileges granted to those whose vested interests the innovation hurts. What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers, or to purvey them at a cheaper price than their old purveyors, he will succeed, in spite of the much talked-of bigness and power of the old firms. Catalactic competition must not be confused with prize fights and beauty contests.

8:20The purpose of such fights and contests is to discover who is the best boxer or the prettiest girl. The social function of catalactic competition is to be sure, not to establish who is the smartest boy and to reward the winner by a title and medals. Its function is to safeguard the best satisfaction of the consumers, which they can attain under the given state of the economic data. Equality of opportunity is a factor neither in prize fights and beauty contests, nor in any other field of competition, whether biological or social. The immense majority of people are, by the physiological structure of their bodies, deprived and of a chance to attain the honors of a boxing champion or a beauty queen.

9:11Only very few people can compete on the labor market as opera singers and movie stars. The most favorable opportunity to compete in the field of scientific achievement is provided to the university professors. Yet thousands and thousands of professors pass away without leaving any trace in the and the History of Ideas and Scientific Progress, while many of the handicapped outsiders win glory through marvelous contributions. It is usual to find fault with the fact that catalactic competition is not open to everybody in the same way. The start is much more difficult for a poor boy than for the son of a wealthy man. But the consumers are not concerned about the problem of whether or not the men who who shall serve them start their careers under equal conditions.

10:04Their only interest is to secure the best possible satisfaction of their needs. If the system of hereditary property is more efficient in this regard, they prefer it to other less efficient systems. They look at the matter from the point of view of social expediency and social welfare, from the point of view of an alleged, imaginary and unrealizable natural right of every individual to compete with equal opportunity. The realization of such a right would require placing at a disadvantage those born with better intelligence and greater willpower than the average man. It is obvious that this would be absurd. The term competition is mainly employed as the antithesis of monopoly.

10:55In this mode of speech, the term monopoly is applied in different meanings, which must be clearly separated. The first connotation of monopoly, very frequently implied in the popular use of the term, signifies a state of affairs in which the monopolist, whether an individual or a group of individuals, exclusively controls one of the vital conditions of human survival. Such a monopolist has the power to starve to death all those who do not obey his orders. He dictates, and the others have no alternative but either to surrender or to die. With regard to such a monopoly, there is no market or any other kind of catalactic competition. The monopolist is the master, and the rest are slaves, entirely dependent on his good graces.

11:47There is no need to dwell upon this kind of monopoly. It has no reference whatever to a market economy. It is enough to cite one instance. A world-embracing socialist state would exercise such an absolute and total monopoly. It would have the power to crush its opponents by starving them to death. The second connotation of monopoly differs from the first in that it describes a state of affairs compatible with the conditions of a market economy. A monopolist in this sense is an individual or a group of individuals, fully combining for joint action, who has the exclusive control of the supply of a definite commodity. If we define the term monopoly in this way, the domain of monopoly appears very vast.

12:37The products of the processing industries are more or less different from one another. Each factory turns out products different from those of the other plants. Each hotel has a monopoly on the sale of its services on the site of its premises. The professional services rendered by a physician or a lawyer are never perfectly equal to those rendered by any other physician or lawyer. But for certain raw materials, foodstuffs and other staple goods, monopoly is everywhere on the market. However, the mere phenomenon of monopoly is without any significance and relevance for the operation of the market and the determination of prices. It does not give the monopolist any advantage in selling his products.

13:27Under copyright law, every rimester enjoys a monopoly in the sale of his poetry. But this does not influence the market. It may happen that no price whatever can be realized for his stuff, and that his books can only be sold at their waste paper value. Monopoly in this second connotation of the term becomes a factor in the determination of prices only if the demand curve for the monopoly good concerned is shaped in a particular If conditions are such that the monopolist can secure higher net proceeds by selling a smaller quantity of his product at a higher price than by selling a greater quantity of his supply at a lower price, there emerges a monopoly price higher than the potential market price would have been in the absence of monopoly.

14:21Monopoly prices are an important market phenomenon, while monopoly as such is only important if it can result in the formation of monopoly prices. It is customary to call prices which are not monopoly prices, competitive prices. While it is questionable whether or not this terminology is expedient, it is generally accepted, and it would be difficult to change it. But one must guard oneself against its misinterpretation. It would be a serious blunder to deduce from the antithesis between monopoly price and competitive price that the monopoly price is the outgrowth of the absence of competition. There is always catalactic competition on the market.

15:10Catallactic competition is no less a factor in the determination of monopoly prices than it is in the determination of competitive prices. The shape of the demand curve that makes the appearance of monopoly prices possible and directs the monopolist's conduct is determined by the competition of all other commodities competing for the buyer's dollars. The higher the monopolist fixes the price at which he is ready to sell, the more potential buyers turn their dollars toward other vendable goods. On the market, every commodity competes with all other commodities. There are people who maintain that the catallactic theory of prices is of no use for the study of reality, because there has never been free competition, or because, at least today, there There is no longer any such thing.

16:06All these doctrines are wrong. They misconstrue the phenomena and simply do not know what competition really is. It is a fact that the history of the last decades is a record of policies aiming at the restriction of competition. It is the manifest intention of these schemes to grant privileges to certain groups of producers by protecting them against the competition of more efficient competitors. In many instances, these policies have brought about the conditions required for the emergence of monopoly prices. In many other instances, this was not the case, and the result was only a state of affairs preventing many capitalists, entrepreneurs, farmers and workers from entering those branches of industry in which they would have rendered the most valuable services to their fellow by fellow citizens.

17:01Catallactic competition has been seriously restricted, but the market economy is still in operation, although sabotaged by government and labor union interference. The system of catallactic competition is still functioning, although the productivity of labor has been seriously reduced. It is the ultimate end of these anti-competition policies to substitute for capitalism a socialist system of planning in which there is no catalactic competition at all. While shedding crocodile tears about the decline of competition, the planners want to abolish this mad competitive system. They have attained their goal in some countries, but in the rest of the world they have only restricted competition in some branches of business by increasing the number of people competing in other branches.

17:59The forces aiming at restriction of competition play a great role in our day. It is an important task of the history of our age to deal with them. Economic theory has no need to refer to them in particular. The fact that there are trade barriers, privileges, cartels, government monopolies and labor unions is merely a datum of economic history. It does not require special theorems for its interpretation. 6. Freedom The words freedom and liberty signified for the most eminent representatives of mankind one of the most precious and desirable goods. Today it is fashionable to sneer at them. They are, trumpets the modern sage, slippery notions and bourgeois prejudices.

18:50Freedom and liberty are not to be found in nature. In nature, there is no phenomenon to which these terms could be meaningfully applied. Whatever man does, he can never free himself from the restraints which nature imposes upon him. If he wants to succeed in acting, he must submit unconditionally to the laws of nature. Freedom and liberty always refer to inter-human relations. A man is free as far as he can live and get on without being at the mercy of arbitrary decisions on the part of other people. In the frame of society, everybody depends upon his fellow citizens. Social man cannot become independent without forsaking all the advantages of social cooperation.

19:41The self-sufficient individual is independent, but he is not free. He is at the mercy of everybody who is stronger than himself. The stronger fellow has the power to kill him with impunity. It is therefore nonsense to rant about an alleged natural and inborn freedom which people are supposed to have enjoyed in the ages preceding the emergence of social bonds. Man was not created free. That freedom he may possess has been given to him by society. Only societal conditions can present a man with an orbit within the limits of which he can attain liberty. Liberty and freedom are the conditions of man within a contractual society.

20:29Social cooperation under a system of private ownership of the means of production means says that within the range of the market the individual is not bound to obey and to serve an overlord. As far as he gives and serves other people he does so of his own accord in order to be rewarded and served by the receivers. He exchanges goods and services. He does not do compulsory labor and does not pay tribute. He is certainly not independent. He depends on the other members of society, but this dependence is mutual. The buyer depends on the seller and the seller on the buyer. The main concern of many writers of the 19th and 20th centuries was to misrepresent and to distort this obvious state of affairs.

21:21The workers, they said, are at the mercy of their employers. Now it is true that the employer has the right to fire the employee. But if he makes use of this right in order to indulge in his whims, he hurts his own interests. It is to his own disadvantage if he discharges a better man in order to hire a less efficient one. The market does not directly prevent anybody from arbitrarily inflicting harm on his fellow citizens. It only puts a penalty upon such conduct. The shopkeeper is free to be rude to his customers, provided he is ready to bear the consequences. The consumers are free to boycott a purveyor, provided they are ready to pay the costs.

22:09What impels every man to the utmost exertion in the service of his fellow men, and curbs innate tendencies toward arbitrariness and malice, is, in the market, not compulsion Human and coercion on the part of gendarmes, hangmen and penal courts. It is self-interest. The member of a contractual society is free because he serves others only in serving himself. What restrains him is only the inevitable natural phenomenon of scarcity. For the rest, he is free in the range of the market. There is no kind of freedom and liberty other than the kind which the market economy brings about.

22:55In a totalitarian, hegemonic society, the only freedom that is left to the individual, because it cannot be denied to him, is the freedom to commit suicide. The state, the social apparatus of coercion and compulsion, is by necessity a hegemonic bond. If government were in a position to expand its power ad libitum, it could abolish the market economy and substitute for it all-round totalitarian socialism. In order to prevent this, it is necessary to curb the power of government. This is the task of all constitutions, bills of rights and laws. This is the meaning of all the struggles which men have fought for liberty.

23:42The detractors of liberty are in this sense right in calling it a bourgeois issue and in blaming the rights guaranteeing liberty for being negative. In the realm of state and government, liberty means restraint imposed upon the exercise of the police power. Liberty and freedom are terms employed for the description of the social conditions of and the individual members of a market society, in which the power of the indispensable hegemonic bond, the state, is curbed, lest the operation of the market be endangered. In a totalitarian system, there is nothing to which the attribute free could be attached, but the unlimited arbitrariness of the dictator.

24:29There would be no need to dwell upon this obvious fact if the champions of the abolition of liberty had not purposely brought about a semantic confusion. They realized that it was hopeless for them to fight openly and sincerely for restraint and servitude. The notions liberty and freedom had such prestige that no propaganda could shake their popularity. Since time immemorial in the realm of Western civilization, liberty has been considered as the most precious good. What gave to the West its eminence was precisely its concern about liberty, a social ideal foreign to the Oriental peoples. The social philosophy of the Occident is essentially a philosophy of freedom.

25:18The main content of the history of Europe and the communities founded by European emigrants The struggle for liberty Rugged individualism is the signature of our civilization. No open attack upon the freedom of the individual had any prospect of success. Thus the advocates of totalitarianism chose other tactics. They reversed the meaning of words. They call true or genuine liberty the condition of the individuals under a system in which which they have no right other than to obey orders. They call themselves true liberals because they strive after such a social order. They call democracy the Russian methods of dictatorial government.

26:08They call the labor union methods of violence and coercion industrial democracy. They call freedom of the press a state of affairs in which only the government is free to publish books and newspapers. They define liberty as the opportunity to do the right things and, of course, they arrogate to themselves the determination of what is right and what is not. In their eyes, government omnipotence means full liberty. To free the police power from all restraints is the true meaning of their struggle for freedom. The market economy, say these self-styled liberals, grants liberty only to a parasitic class of exploiters, the bourgeoisie.

26:56These scoundrels enjoy the freedom to enslave the masses. The wage earner is not free. He must toil for the sole benefit of his masters, the employers. The capitalists appropriate to themselves what, according to the inalienable rights Doctrines of Man Should Belong to the Worker Under socialism, the worker will enjoy freedom and human dignity because he will no longer have to slave for a capitalist. Socialism means the emancipation of the common man, means freedom for all. It means, moreover, riches for all. These doctrines have been able to triumph because they did not encounter effective rational criticism.

27:41Some economists did a brilliant job in unmasking their crass fallacies and contradictions, but the public ignores the teachings of economics. They are too heavy for the readers of tabloids and pulp magazines. The arguments advanced by average politicians and writers against socialism are either silly or irrelevant. It is useless to stand upon an alleged natural right of individuals to own property if other Other people assert that the foremost natural right is that of income equality. Such disputes can never be settled. It is beside the point to criticize non-essential attendant features of the socialist program. One does not refute socialism by attacking the socialist stand on religion, marriage, birth control and art.

28:32Moreover, in dealing with such matters, the critics of socialism were often in the wrong. Thus, for instance, they were so inept as to turn the disapproval of the Bolshevist persecution of the Russian Church into an approbation of this debased, adamantly intolerant Church and its superstitious practices. In spite of these serious shortcomings of the defenders of economic freedom, it was impossible to fool all the people all the time about the essential features of socialism. The most fanatical planners were forced to admit that their projects involved the abolition of many freedoms people enjoy under capitalism and Pluto democracy. Pressed hard, they resorted to a new subterfuge.

29:21The freedom to be abolished, they emphasize, is merely the spurious economic freedom of the capitalists that harms the common man. Outside the economic sphere, freedom will not only be fully preserved, but considerably expanded. Planning for freedom has lately become the most popular slogan of the champions of totalitarian government and the Russification of all nations. The fallacy of this argument stems from the spurious distinction between two realms of of Human Life and Action entirely separated from one another, namely the economic sphere and the non-economic sphere. With regard to this issue, there is no need to add anything to what has been said in the preceding parts of this book.

30:11However, there is another point to be stressed. Freedom, as people enjoyed it in the democratic countries of western civilization in the years was not a product of constitutions, bills of rights, laws and statutes. Those documents aimed only at safeguarding liberty and freedom, firmly established by the operation of the market economy against encroachments on the part of officeholders. No government and no civil law can guarantee and bring about freedom otherwise than by by Supporting and Defending the Fundamental Institutions of the Market Economy. Government means always coercion and compulsion, and is by necessity the opposite of liberty.

31:04Government is a guarantor of liberty and is compatible with liberty only if its range is adequately restricted to the preservation of economic freedom. Where there is no market economy, the best intentioned provisions of constitutions and laws remain a dead letter. The freedom of man under capitalism is an effect of competition. The worker does not depend on the good graces of an employer. If his employer discharges him, he finds another employer. The consumer is not at the mercy of the shopkeeper. He is free to patronize another shop if he likes. Everybody must kiss other people's hands or fear their disfavor. Interpersonal relations are businesslike.

31:51The exchange of goods and services is mutual. It is not a favor to sell or to buy. It is a transaction dictated by selfishness on either side. It is true that in his capacity as a producer, every man depends either directly, for example, of the Entrepreneur, or indirectly, for example, the hired worker, on the demands of the consumers. However, this dependence upon the supremacy of the consumers is not unlimited. If a man has a weighty reason for defying the sovereignty of the consumers, he can try it. There is, in the range of the market, a very substantial and effective right to resist oppression. Money is forced to go into the liquor industry or into a gun factory if his conscience objects.

32:43He may have to pay a price for his conviction. There are in this world no ends, the attainment of which is gratuitous. But it is left to a man's own decision to choose between a material advantage and the call of what he believes to be his duty. In the market economy, the individual alone is the supreme arbiter in matters of his satisfaction. In the political sphere, resistance to oppression practiced by the established government is the ultima ratio of those oppressed. However illegal and unbearable the oppression, however lofty and noble the motives of the rebels, and however beneficial the consequences of their violent resistance, a revolution Revolution is always an illegal act, disintegrating the established order of state and government.

33:36It is an essential mark of civil government that it is in its territory the only agency which is in a position to resort to measures of violence or to declare legitimate whatever violence is practiced by other agencies. A revolution is an act of warfare between the citizens. It abolishes the very foundations of legality and is at best restrained by the questionable international customs concerning belligerency. If victorious, it can afterwards establish a new legal order and a new government. But it can never enact a legal right to resist oppression. Such an impunity granted to people venturing armed resistance to the armed forces of the to Government is tantamount to anarchy and incompatible with any mode of government.

34:29The constituent assembly of the first French Revolution was foolish enough to decree such a right, but it was not so foolish as to take its own decree seriously. Capitalist society has no means of compelling a man to change his occupation or his place of Money, The Theory of Money and State, The Theory of Money and State, The Theory of Money

35:15However, man is no less free. He alone decides what is more and what is less important for him. He chooses how to spend his money according to his own will. The substitution of economic planning for the market economy removes all freedom and leaves to the individual merely the right to obey. The authority directing all economic matters controls all aspects of a man's life and Activities. It is the only employer. All labor becomes compulsory labor because the employee must accept what the chief deigns to offer him. The economic czar determines what and how much of each the consumer may consume. There is no sector of human life in which a decision is left to the individual's value judgments. The authority assigns a definite task to him, trains him for this job, and employs him at the place and in the manner it deems expedient.

36:20As soon as the economic freedom which the market economy grants to its members is removed, all political liberties and bills of rights become humbug. Habeas corpus and trial by jury are a sham if under the pretext of economic expediency The authority has full power to relegate every citizen it dislikes to the Arctic or to a desert and to assign him hard labor for life. Freedom of the press is a mere blind if the authority controls all printing offices and paper plants, and so are all the other rights of men. A man has freedom as far as he shapes his life according to his own plans. A man whose fate is determined by the plans of a superior authority, in which the exclusive power to plan is vested, is not free, in the sense in which this term, free, was used and understood by all people, until the semantic revolution of our day brought about a confusion of tongues.

37:267. Inequality of Wealth and Income The inequality of individuals with regard to Wealth and Income is an essential feature of the market economy. The fact that freedom is incompatible with equality of wealth and income has been stressed by many authors. There is no need to enter into an examination of the emotional arguments advanced in these writings. Neither is it necessary to raise the question of whether the renunciation of liberty could could in itself guarantee the establishment of equality of wealth and income, and whether or not a society could subsist on the basis of such an equality. Our task is merely to describe the role inequality plays in the framework of the market society.

38:16In the market society, direct compulsion and coercion are practiced only for the sake of preventing acts detrimental to social cooperation. For the rest, individuals are not molested by the police power. The law-abiding citizen is free from the interference of jailers and hangmen. What pressure is needed to impel an individual to contribute his share to the cooperative effort of production is exercised by the price structure of the market. This pressure is indirect. puts on each individual's contribution a premium, graduated according to the value which the consumers attach to this contribution. In rewarding the individual's effort according to its value, it leaves to everybody the choice between a more or less complete utilization of his own faculties and abilities.

39:13This method can, of course, not eliminate the disadvantages of inherent personal inferiority, and it provides an incentive to everybody to exert his faculties and abilities to the utmost. The only alternative to this financial pressure as exercised by the market is direct pressure and compulsion as exercised by the police power. The authorities must be entrusted with the task of determining the quantity and quality of work that each individual is bound to perform. As individuals are unequal with regard to their abilities, this requires an examination of their personalities on the part of the authorities.

39:58The individual becomes an inmate of a penitentiary, as it were, to whom a definite task is assigned. If he fails to achieve what the authorities have ordered him to do, he is liable to punishment. It is important to realize in what the difference consists between direct pressure exercised for the Prevention of Crime, and that exercised for the extortion of a definite performance. In the former case, all that is required from the individual is to avoid a certain mode of conduct, precisely determined by law. As a rule, it is easy to establish whether or not this interdiction has been observed. In the second case, the individual is liable to accomplish a definite task.

40:46The law forces him toward an indefinite action, the determination of which is left to the decision of the executive power. The individual is bound to obey whatever the administration orders him to do. Whether or not the command issued by the executive power was adequate to his forces and faculties, and whether or not he has complied with it to the best of his abilities, is extremely difficult to establish. Every citizen is, with regard to all aspects of his personality and with regard to all manifestations of his conduct, subject to the decisions of the authorities. In the market economy, in a trial before a penal court, the prosecutor is obliged to produce sufficient evidence that the defendant is guilty.

41:37But in matters of the performance of compulsory work, it devolves upon the defendant to prove

42:13can do without a method that makes individuals responsible for their contributions to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police.