Zoning and the Free Market

0:00With regard to the basic philosophy of the free market system, I would start off by calling to your attention a phrase that is much in vogue in some quarters, namely, anything goes between consenting adults. This is usually applied to sex or drugs or pornography or other exotic things, which I'm not really concerned with today. Today. I hope I don't disappoint you too much. But what I want to do is to apply these to the more prosaic economic or commercial realms. And I want to say that capitalist acts between consenting adults also ought to be allowed. That if people ought to be free to engage in exotic sexual or drug practices, they also ought to be free to engage in commercial Social Practices between two consenting adults without any overriding big brother kinds of regulations hemming them in at every turn.

1:00And there are two reasons for this, two basic reasons why I hold this position. One of them is that government is very less effective, very less efficient at providing all sorts of services that it has taken upon itself to provide. There are some four or five hundred crown corporations delivering or regulating everything from milk, wheat, eggs, to oil, housing, I mean you name it and the government is controlling it or owning it in some way, manner, shape or form. It's really hard to come up with an area where the weight of the government is not heavily focused upon. And I think one of the difficulties with this is that the government is very inefficient at doing these things.

1:52The reason it's so inefficient, I think, is not because businessmen are less able than bureaucrats, it's not because bureaucrats are less able than businessmen, nor is it that bureaucrats are less highly motivated. I think in some cases bureaucrats are even more highly motivated than businessmen to do what's in the public good, or what they think is in the public good. I think the basic reason for this is that businessmen, not bureaucrats, benefit from a survival test, a profit and loss test. Now you know in terms of providing consumer services what you have to do is work at them now, organize them now for sale some months or years hence.

2:39And what you have to do then is to anticipate what consumers will be wanting two, three, for more months or years in advance. Now there are some people that are very good at this. They can anticipate what the market will want, and they can provide it in an inefficient way. And those businessmen who do so prosper. The businessmen who don't suffer losses. And when you suffer losses once too often, there's only one recourse for you, and that is to stop being a business man as you go bankrupt. And it's this kind of a thing that is completely lacking in the bureaucracy. If a businessman does a good job, if a bureaucrat does a good job, he doesn't thereby gain, he doesn't increase his personal fortune necessarily, nor necessarily increase the influence that he has.

3:27And conversely, if he engages in a Chrysler bailout or another, say a post office mistake, which I think is a mistake in view of the fact that they're losing bushels of money, well he doesn't get caught short, he can continue his merry way in a way that the businessman could not. So, I think that this survival test, this profit and loss market test, which applies to business but not to the bureaucracy, is one reason why the businessman can be expected to be more efficient than the bureaucrat. Even if we start initially, if we start our mental experiment with two universes which are statistically indistinguishable, I still think the fact that we have this automatic reward and penalty system in the one area, but not in the other, will bias our results toward better results in the one than in the other area.

4:25Now I've spoken against government involvement and made several statements along that line. Let me clarify some views on that. I do think that there is a proper role for government. I'm not one of these that says that government shall not do anything at all. The kinds of roles I see for the government are peacekeeper, lawgiver, referee, adjudicator, rule setter, things like that. You might compare the government to a referee in a hockey game. The government should be the referee and it should not pick up the hockey stick because when it picks up the hockey stick and tries to knock the puck through the goal, one it does so very badly and I've tried to explain why I think it does so very badly, and two Two, it renounces the job that it is uniquely suited to pursuing, namely, law giving, rule giving, adjudication, protection, defense, etc.

5:23One example I might offer to you of this is the pollution case. Many people say, well, isn't pollution a case of government run, of businessmen run wild after the unholy buck they're trying to profiteer, they've just got their mind on the fast dock, and they don't care and they're polluting here and they're ruining the air, they're ruining the streams, etc., etc. My answer to that is that this is a perfect example of what I'm saying, namely renunciation of government's proper role and instead taking on all sorts of irrelevant roles, roles that I see as irrelevant to government. The reason for that is suppose you had a public-spirited businessman, suppose you had a businessman A businessman that was determined not to be a bad citizen.

6:10And what would he do? Well, he might put in a smoke prevention device on his chimney so that the fumes and soot didn't waft over innocent people. Or he might take special care not to dump his sewage in the river like everyone else is doing. But if he did that, what would happen to him? Well, we all know what would happen to him. He would be placing himself in a competitive disadvantage. Every other businessman would not have that cost. He would have that cost and in the long run we can predict that he would go broke. Now is the conclusion that therefore the invisible hand works by choking the body economic? I think not. I think this is a case where the government has failed to provide leadership or rule making or what have you.

6:58You people probably know a lot more about this and a lot better than I do but let me I don't want to risk exposing my ignorance by telling you a rough thumbnail sketch of legal history as I see it in the late 19th century. The first pollution cases in the US and in Canada as well were over the law of nuisance. You'd get some small businessman or consumer or some other person, a farmer, are complaining that either a railroad engine was wafting pollutants on his property, scaring the cows and burning the straw or getting the laundry dirty. And if you'll excuse my non-legalese jargon, the court held in effect that yes, private property rights were being violated by the polluter and that yes, if the law of nuisance This was a fine example of applying the law of nuisance.

7:58However, they did not grant an injunction against the pollution. What they said, in effect, is that there's something more important than mere personal private property rights, and that is the public good. And guess what the public good consisted of? The public good consisted of manufacturing. So, no injunction was granted. A carte blanche, on the contrary, was granted to the polluter, to the polluter and he just polluted his merrily way for about a century. Now had the injunction been granted, had governments upheld private property rights or had they come up upon different kinds of schemes, for example, we see we don't want to have zero pollution because if we had zero pollution we'd have zero production and we'd all die.

8:45On the other hand, we don't want to have as much pollution as we've got now or anyone One can pollute pretty much as much as he wants, like Witness the Love Canal or Lake Erie where I'm told that they have fires in the middle of Lake Erie. The oily water just burns every once in a while. We don't want that either. There is some sort of optimal amount of pollution which would balance our desire to have productivity and our desire to have clear, clean air and water. So what the government might do according to some of these schemes is to determine upon this amount and then sell pollution rights, just like they sell any other scarce resource. And if they did that, namely sell only the pollution rights up to the point that we'd have an optimal amount of pollution, this would be the other kind of a scheme. Having not instituted these schemes, industry went off on a certain tangent. Namely, it was accustomed to a zero price of pollution and it acted

9:41accordingly. See, given the parameters that business was operating with, the invisible hand, the seeking after profit was doing a fine job. It's just that the parameters were all crazy. Had they had more rational parameters, namely either granting these injunctions or this pollution rights sale scheme, well then I think business would have had a century of more investment in R&D, more responsible behavior, and businessmen would not have been blamed for something that could not have been their problem. So my analysis of the pollution problem is that it's not an example of government, of businessmen and profit motive run amok, rather it's a prime example of government not doing its job and being too busy doing a hundred thousand other things.

10:33Okay, with these brief remarks on the basic philosophy of the market system, I want to now read a more formal paper on zoning and then I hope to get into a question period where we can consider zoning and or any other thing that seems relevant to you. Let me start out with a statement from an astute commentator on the North American political scene. Alexis de Tocqueville warned of a government that works for the happiness of its people, but covers the surface of society with a network of small, complicated rules, minute and uniform. The will of man is not shattered, but softened, bent and guided. Men are seldom forced by it to act, but they are constantly restrained from acting.

11:23Such a power does not destroy, but it prevents existence. It does not tyrannize, but it compresses, innervates, extinguishes, and stupefies a people till each nation is reduced to be nothing better than a flock of timid and industrious animals of which the government is the shepherd. This was written quite a while ago, but I think it's an apt description of what's going on now as any. Now I don't think that zoning itself is responsible for all of that, but it does, I shall try What is zoning? Zoning can be defined as an attempt to legislatively prohibit so-called incompatible land usages in the urban environment, and to otherwise bring about government control and management of building settlement patterns.

12:13The fear is that without zoning, urban chaos will result, that external diseconomies will that, for example, Pickleworks will come to rest cheek by jowl with single-family homes, glue factories beside country clubs, etc. and that the result will be falling property values and poor planning. In my view, this fear is unfounded and for two reasons. First, governmental zoning is unnecessary because its avowed aims are better attained through private marketplace zoning. Zoning Second, governmental bureaucratic zoning creates positive harm, especially when compared to the private variety. This debate is really between public and private zoning, not between zoning and non-zoning.

13:03It's just like the debate over centralized planning of our economy. Although the central planners saw this as a choice between central planning and no planning Zoning at all, i.e. chaos, the real choice is always and was always between private through the price system and centralized public planning. It's between private planning, coordinated by the price system and centralized planning. We all know roughly how public zoning works, but what is this private zoning? One example of marketplace zoning is the management decisions made by the shopping center owner. He must decide where to locate each of his tenants in relation to the other in order to maximize the value of his holdings. He must provide convenient parking facilities and easy access to automobile traffic.

13:51He must rationally allocate the space, interspersing restaurants, variety and specialty stores. For example, if he accepts 10 hardware stores and no snack bars, he is unlikely to prosper. Another case occurs within each store, where the managers have to locate their wares the better to maximize total sales. If these private zoning efforts to arrange their goods are not done well, the store owner can lose customers. On a more basic level, private marketplace zoning occurs through the price system. The real reason we find no gasoline service stations on side streets, no hamburger fast food places No glue factories on the corner of our main streets in the central downtown area has little to do with zoning restrictions. It's because of the market mechanism. Quite simply, land prices in the top residential or commercial areas are just too high for the glue factory. Downtown land values effectively prohibit any but the most concentrated and valuable uses, such as office buildings or high-rise hotels and residences.

15:03In several areas, Fraser Institute research shows that the inhabitants look positively at the creation of commerce. It increases their local job opportunities. Moreover, it is only common sense that hamburger stands and filling stations would be located on large commercial thoroughfares or, even better, their intersections. Anywhere else would spell almost certain and immediate bankruptcy. Running through these examples is the theme of profit and loss as an incentive system.

15:43The affairs of the developer intimately depend upon the wisdom of his choices and those of the zoning bureaucrat do not. This is sort of repetitive of what I've said before. When the private investor makes a decision, he does so with his own money, which he can forfeit in the case of error. The zoning bureaucrat makes choices worth billions of dollars on behalf of an entire city. He places none of his own money at risk. The reason I expect better results, again, from business rather than bureaucracy is because of this weeding out process of profit and loss, which applies only in the market, not in civil service. I certainly don't think that the zoning bureaucrat is necessarily less intelligent than the land developer. He's got job security, doesn't he? That's pretty smart. No, the point is only that the market system of profit and loss continually weeds out inefficient businessmen, thus improving the breed, and that no such automatic system applies to civil service.

16:39Still another example of private zoning occurs in the system of restrictive land covenants Covenant, as practiced widely in the Southwestern United States and especially in Houston, Texas, where some 10,000 different covenants are on file. How does this scheme work? Although there are many differences, as you would expect from individual land contracts, several patterns emerge. A typical covenant might be drawn up by the land developer and becomes incumbent on the homebuyer as a precondition of purchase. It might specify just about anything from required exterior painting color to restrictions on building fences, dog houses, swimming pools, porches, etc. and might lapse after 20 or 30 years or not, depending on a majority two-thirds or three-quarters of the vote at specified times in the future.

17:32It is important to realize how different this is from government zoning. For one thing, it's entirely voluntary. It applies only to the involved interested parties. True, the seller typically draws up the agreement, but if he is capricious, he won't be able to sell his house or he'll be forced to take a reduced amount. Like if he insists that all houses be painted with pink and blue polka dots, that would be capricious and he'd have to take a loss on that. The very existence of Houston, a large North American city with an area in excess of 500 in a population of 1.6 million, which can function normally and continue to grow without zoning, is a major piece of evidence against the traditional view that zoning supposedly protects against chaos.

18:17City settlement patterns in Houston rely on the price system, economic forces, private zoning and land covenants. There are also several municipal land use ordinances covering minimum lot size, building setbacks, trailer densities, building lines, parking spaces, nuisance laws, billboard requirements and the location of tanning factories. But there is no zoning in Houston. The city is not divided into geographical zones, each with a different and special construction requirement. Billboards, for example, can be built anywhere in the city, and municipal laws concern only with their safety. Yet, for the economic reasons we have discussed, they do not appear in quiet residential streets or cul-de-sacs, only on large commercial streets, as in other cities.

19:08Houston has rejected zoning referendums in 1920, 38, 48, 62 and 69, according to Roscoe Francisco Jones, Houston's Director of City Planning and a Fraser Institute author and zoning opponent. And he says that Houston will reject it again if ever proposed. Let me turn now to some of the difficulties with zoning, the government variety. First and perhaps most important, zoning has contributed to an extremely serious housing shortage in the city of Vancouver, where I come from. The vacancy rate has been hovering at a virtual zero level for some time now, and things are so bad that people are actually talking of living in tents. There have been newspaper columns on the front page of Vancouver newspapers talking about this.

19:59I don't say that zoning is the only cause of this housing crisis. There are other things, preeminently rent controls and the government's abandonment of low tax policies for housing construction, such as the CCA. And then there's the agricultural reserve, whereby lands are frozen into agriculture and not allowed to be used for housing. But make no mistake about it, zoning legislation has played a part by reducing the supply of housing and the intensity with which land may be used. Density requirements have reduced the supply of housing that can be built even in residentially zoned areas. Instead of allowing high rises, construction has been limited to three-story low rises in many areas. All this, needless to say, reduces supply and drives the price of housing lots up through the roof.

20:49And then there are the petty regulations, which perhaps contribute only slightly to the shortage, but which set the tone of bureaucratic indifference. The so-called thin houses, houses of less than 15 feet in width, have been all but prohibited, and basement rentals in one or two family homes are not allowed. The Basement Prohibition is widely violated, but this just breeds contempt for all laws, good and bad, surely not a satisfactory result. Secondly, zoning hurts the poor. Apart from the skyrocketing rents and first home prices, there is exclusionary zoning, which compels large lot sizes. Sometimes racially motivated, but more often simply anti-poor, by Poor, these laws make it impossible to build for the poor and even the middle class in many desirable areas.

21:39And the less affluent are beginning to realize this. Election analysis of zoning referendums in the southwest of the United States shows the greatest disapproval rates in poor and middle class writings, not in rich ones. Thirdly, governmental zoning brings graft in its wake. The reason for this is easy to see. A less restrictive variance may be worth millions of dollars to the land developer. Be the bureaucrat ever so honest, he will be sorely tempted by a share in these gains. Paradoxically, this is not necessarily all to the bad. If a bribe can convert a land parcel to a use more highly prized by consumers, wealth in the allocation of resources will have been much more nearly optimized. This is not the first case on record attesting to the benefits of black markets.

22:30It is not difficult to see the implications for a city's tax base. If zoning prohibits, retards or delays the construction of the most highly valued uses in a snarl of bureaucratic red tape, then the tax base will be lower than it would otherwise have been in the absence of this policy. Then there is the question of aesthetics. Zoning advocates sometimes point to the ugliness of urban sprawl as a point in their favor. I would reply, one, that beauty is in the eye of the beholder, and that the typical owner of a small cottage in suburbia with its backyard grill and other middle class accessories is probably pleased with his house and way of life.

23:15He bought it, didn't he? Even if it offends the aesthetic sensibilities of Some Elitists. And that, for me, diversity is a part of beauty, not the conformity engendered by zoning. One testimonial to this view is the skyline of many of our major cities, which took place before zoning was very heavily in effect. Let me conclude by considering a vast injustice committed by zoning bureaucrats, their failure to compensate owners of land and property for Downzoning to Less-Valued Uses.

23:51According to eminent domain laws in most civilized countries, the government can condemn private property for public use, but only if it compensates owners fairly. Yet rezoning, which is nowadays a commonplace occurrence, can destroy thousands of dollars of value and leave the property owner no recourse in law. I advocate a complete elimination of zoning laws in Vancouver, in Halifax and in every other Canadian city where this mischievous legislation is in effect and that we should follow the Houston pattern of no zoning, no government zoning that is. But failing that, simple justice and human decency would demand at the very least that zoners be forced to take into consideration the costs of their activities.

24:41This may not stop them, since their own personal funds will still not be at stake, but it will be a step in the right direction. Question? Yes, sir. You mentioned the Fraser Institute with respect to some of the other institutes, like the Institute for Research on Political Policy. If you look quite right, they get a major amount of their funding from the university. You mentioned the Fraser Institute, with respect to some of the other institutes, like the institute for research on cost, they get a major amount of their funding from government, but in listening to the tenor of your address, it seemed to me to be like a symphony played on one instrument, one note, and that is that the government should get out of this, and government should get out of that, and government in regard to this. Now I would have to guess, and this is a total guess, that the major portion of the funding, the Fraser Institute, is coming from private industry. Is that true?

25:34And you see a correlation? Yes. Where does your money come from? Well, as a matter of fact, if you're frozen out of government funds, either by yourself or by volition or by other forces, there is only one other source of funding. Fund. That happens to be private funding. And the Fraser Institute is supported by funding from corporations ranging from the mom-and-pop grocery store to the biggest corporations all across Canada, from private foundations and from individuals. Now, with regard to your view about playing the symphony on one note or on one instrument, I don't think I can fairly be accused of that. There's at least a duet. There's at least one other instrument.

26:24Because you'll remember that not only did I say the government would be well advised not to do this, that, and the other, and the third thing, and the fourth, and the fifteenth, but also that there was a very important role for government, that only government could do, that government was uniquely capable of solving, but that government, in its haste to do everything else, has renounced this one thing, and this one thing is crucial. And I try to give an example through pollution, that if government... I mean, if we didn't have any policemen and we had Hobbes' war of all against all, we wouldn't have a very good society. And obviously, there's a very important role for government to play, So I don't think it's fair to say that I've been playing one note or one instrument that government ought to end this, that and the other.

27:10It's true there are many things I don't think government is congenitally able to do, but then there are certain things that I think private enterprise cannot do at all. And that only government can do, and are very crucial for our society, and it's government's lack in these areas, the lack in police protection, for example, is a strong case in point. The standard response to what you would have to say about government doing its job and not trying to do everyone else's is that when government does try to enact reasonably strong pollution laws or laws in other areas, private industry moves elsewhere. And we have provinces like down here, New Brunswick, Nova Scotia, trying to relax their laws and moving out of it to attract industry.

27:58So I don't think that you can say that the private enterprise should be left alone to do the manufacturing and the government should be in there and make the rules and that these two guys are going to get along because I think all that's going to happen is that private enterprise is going to take its ballgame elsewhere and where there are pollution havens and I think a study of pollution and environmental law might suggest that to you. Well, what you say is not without merit. I think there is some merit to that. But on the other hand, I would point to you the example, say, of the United States and Canada, where Ronald Reagan has just got elected on a basis of, among other things, a more free-enterprising kind of economy. And take the example of the oil pricing and punitive oil taxing, which does occur in Canada.

28:48and just today or yesterday they've announced that they've gone to the world prices in the US. And look at which way the flow of oil drilling rigs is going. I mean, is it going from south to north? Not on your whatever. It's going from north to south. And I think this is very analogous to looking at the one-way traffic from East Germany to West Germany, East Berlin to West Berlin. These people vote with their feet and I think that the business community is voting in this case for less government control. It's true that in some cases a government might be called upon to take a statesman-like act and go against the tide of business.

29:33And I think that it should and it would be well advised to do this in certain pollution cases. And I think that this is ultimately the best for business. and I think business would go along with that because businessmen don't want their kids to die of cancer either. I think it's a travesty of justice and fairness to say that businessmen want this. I think that if there were reasonable rules of the game and that if business could accustom itself to these rules of the game and invest in R&D in order to have smoke prevention devices and if it had been doing this for the past hundred years we wouldn't have had the problem. So I can't say that you and I are in complete accord. It seems that being drawn back to bureaucratic zoning, there's no incentive for that bureaucrat to zone properly.

30:22In the Houston mode of private zoning, where is the incentive for a private property owner to attach restrictive covenants to his property on which he wishes to realize the highest profit? If he has a ridiculous and absurd and arbitrary restrictive covenant, like you have to paint your house pink and blue polka dots and you can't have fences and you have to have the basement on the roof or various things like that, who's going to want to buy the house? And if they do, they'll buy it at a very reduced price. But if he has restrictive covenants of the sort that the people want, namely you have to paint your house white, say, if that's what people want, or you have to have a picket Fence or you can't have dogs or whatever it is and people with dogs will then sort themselves out or if he has a thing that people want say that in 20 years we can have a vote as to whether to sell it out for this that or the other this enhances

31:22the value of the property or that there's a rule that for some people that don't believe market forces that no gasoline station or McDonald's burger place can be located in the middle of it well many people would prefer to buy a by a house with those restrictive covenants, not because they look upon the restrictions to themselves, but because they realize that their neighbors are similarly restricted from doing things that they don't want their neighbors to be doing in the first place. I think, to get back to the salacious area, there are certain nudist apartment houses in Houston, which is the only city in the country or North America The idea here is that people with wild and exotic tastes can sort themselves out.

32:14I mean, if you're a nudist and you don't mind other nudists nudisting around or whatever they do, well then this is a benefit to you. This is a restrictive covenant that you like. Namely, nudism will be allowed. That will enhance the value of the property for nudists. And conversely, it'll enhance the value for the straights to have a new restrictive covenant that nobody can do anything like that except in the privacy of their own bed. So, there's a competition as to how to get the better restrictive covenant. People work at that. It's a sub-industry of law. Whereas here, you're quite right, there is no competition to make a better law. The people that fail don't lose money thereby. And we as social scientists can, I think, expect worse laws to be created through this mechanism than through the other.

33:25I don't see how you can then put the finger on one bureaucrat and say it's his fault. Judicial systems, based on the fact that our referees are impartial and aren't subject to termination or firing, or free from the threat of that sort of effect of losing your job based on an unprofitable or bad decision. defend the impartiality of the system based on the edges, as I see it.

34:02But the responsibility gets when you're not in the kitchen. If he carries the can, he's the one you fire, he's the one that makes the funds.

34:20How can you, by spending money, I just try to get through the question of zoning, how you can see the process first? I'm just trying to get through the question of zoning, how you can see the process first. Well, you're asking three or four questions, and I'm trying valiantly to do my best, but if you want to take another turn, it's okay. No, go ahead. Okay. I called on him again. I'm glad to hear the interest, but let me have my turn, and then I'll call on you again. What you're saying, I think, is a variant of the theme. X is good because X was the product of a democratic process.

35:12I don't believe that. I don't believe that just because a law was voted on by a majority that either it's efficient or that it's moral or anything else. We need point no further than to Nazi Germany, which came in under a democracy, to explode the myth that just because X erupts due to a democratic process, X is anything. I mean, we can't say anything about X just because we know that a majority or plurality of the people were in favor of it. Secondly, I think that, take the Chrysler case, I think that here is a perfect case in point. When we had the private Chrysler company, we now have a public Chrysler company, but when we had a private Chrysler company, they were competing with other automobile corporations for the consumer's dollar.

36:05They failed, and according to the market system, they should be allowed to go the way of the Dodo Bird or the, I don't know, whatever, the Tyrannosaurus Rex and go into bankruptcy and their capital would be taken over by other corporations that could use it better. Instead, what the government did was it bypassed this consumer choice and it said to the consumers in effect, even though you weren't willing to give this company your funds as a voter for your approval, we're going to take it from you in the form of taxes and give it to them. And then, since responsibility and power have to go together, they're going to start making the decisions. And now we have, really, in the US, a quasi-crown corporation for Chrysler.

36:51And even if, and this was all done by elected officials, there was nothing undemocratic about it, Well, I feel that it's proper to challenge the decisions made by popularly elected officials and say that they're unwise, that there's a better way of doing it, that instead of a political ballot box vote, the dollar vote is more efficient in this regard. Your turn. Well, I guess I would like to mention the guy with democracy. I would like to mention, regarding democracy, something in terms of what's said about being the worst system that you've ever seen, except for Ronald Allen and all others. The totalitarian system, or a system where I live in a community and trying to regulate what happens around me, the things that affect me directly by my spending power, I think immediately suggests that there's an inequitable system somewhere in the flow, The second big problem is, what we're dealing with here is the question of zoning, one of the issues you brought about, and you're putting blame on government.

38:09without, on bureaucrats, without saying, okay, the responsibility will be with the individuals. Now, we're saying in a low income, let's go, for example, your example of billboards in a low income area. If, and I think it's been shown in certain areas, such as Boston, where they banned all billboards in the city throughout, that in low-income areas, where community pride was fairly low, where the intricacies of juvenile delinquency, crime, that sort of thing, were high, that neighborhood pride in the area went up with the degree to which the overt symbols of commercialization were taken away. The people took greater pride in their properties and actually the tone and tenor of the neighborhoods improved and that they can show this in increased property value, the people were willing to move into these areas and actually the benefit to the people living there was a better sense of community by these certain types of controls and I think that those are the sorts of people who are willing to go to government to perform certain things for them

39:16and certain ones that they want. They don't want to go into a lottery system Okay, well you've made two claims here, and I'll try to answer them. The second one first. With regard to the idea that banning commercial billboards and other forms of commerce increase property values, this book, Zoning its Costs and Relevance for the 1980s, studies the following cities.

39:52is Pittsburgh, Boston, Rochester, Houston, and Vancouver. And the summary of all these empirical studies based on econometric techniques is the opposite. So we have an empirical dispute. Which way does it work? I say one way, you say the other way. We'd have to compare our t-values and all. On the other point about democracy and rich men running things and all, let me make two points on that. First of all, I was not advocating no democracy. So the point from Winston Churchill I agree with. It's a lousy system except that everything else is worse. However, there's a difference between what I would call limited democracy, where we don't vote on everything, and total democracy, where we can vote on everything.

40:39I mean, I don't think we should vote on whether left-handed, red-headed people should be thrown in jail. Are you left-handed? Good, okay, so we don't have anyone here. I don't think that such a thing is a votable issue, nor do I think that things like Chrysler bailouts should be votable issues. I believe in capitalist acts between consenting adults, and I don't think it's any business of the public to concern itself with the private capitalist acts of individuals. Now, with regard to your statement that if this were true, the rich men would run things, I would say just about the opposite is true. In Russia nowadays, and in China, for all I know, news is not as reliable as it might be, you don't have people that are rich in money, but if you win a gold medal or a bronze medal in weightlifting, you get a limousine at a place near the Caspian Sea or what have you, and you can get an apartment in Moscow.

41:36In other words, there are certain things that are given out, that a society has to give out, And one way to give it out is through the political process, as in Russia, and I think that that has great and fatal flaws. In contrast, when Henry Ford made a billion, or a trillion, or a jillion, or whatever he made, the only way he made it was by immeasurably enriching everyone else. The way he made that money was by providing automobiles for the middle class for the first time. See, what you have here is a positive sum game. True, the rich can make money, but in a market system, they can only make money by creating untold wealth for other people. I think the reason we have the standard of living that we now have is because of the businessmen, because of the creativity of the people that have earned vast richnesses.

42:28I don't believe that it's a zero-sum game, that everything I make, you lose. I think we've had the model of, you know that game Monopoly? You've all played Monopoly as kids. Many people see the game Monopoly as an apt description of the market, and I say it's not. Monopoly is a zero-sum game. When I make money, you lose money. And kids play that game and they sort of think, well, this guy is rich, it must be that that guy is poor. I mean, that's what Pierre Trudeau is doing in effect now, racing around to these other countries of the Countries, and saying, because we're rich, they're poor. The very opposite is true. Because we're rich, they're richer than they would have otherwise been had we not been so rich.

43:15And it's because of this positive sum game idea. Yes, sir? Well, I realize this is an awfully simplistic point. And you probably have all sorts of counters, but there have been just as many counters against them. Then it's that where you have an act with two considering adults in the sexual field may be fine. But in the business field, it seems to me that a lot of times there's going to be a lot of third parties getting hurt by that act. And, you know, I don't see any, you know, big alternative to a third party being injured so two other parties can get it. Would you care to give me an example of the third party? I think the pollution is an area where, you know, like you can go ahead and you can have these two great corporations trading off land and values and polluting the hell out of a river, which is kind of ruining, you know.

44:00Right, I get it. You want to mention another example, since I did deal with pollution for about 15 minutes? Well, I just think that it flows over in other areas as well. Well, first of all, about sex not affecting third parties is nonsense. I mean, it creates third parties. Let me go to that issue. Well, I love that issue. Let me talk about it. We do have anti-pornography moves. We have a lot of feminists that are opposed to pornography. We have people that are, religious people that are opposed to it, that are third party. So I don't want you to think that in these kinds of areas there are no third parties. There are. The question is, is their interest relevant? I would think not.

44:46Now in the case of pollution, I'm really appalled that you would mention that Because I consider that a primary example for the very exact opposite of what you're trying to say. Namely here, the reason that there are effects on other parties is because the government has been remiss in its job, in its duty. So I really think I've answered it. Well, this hasn't been tough enough, that's... Well, that's... we're agreeing on that. Yes? You're saying that in the healthy economy, you're waiting on successful businessmen. So we even know to end up on the welfare line, the government ends up handing them out money. way down the line. It's exaggerated, but if you're aligned, it's kind of weeding out after you've sort of made more of an intervention and a different model? Well, that's a new point. I've been going around the lecture circuit and I confess that I've never heard that point and I thank you for it. Next time I hear it, I'll be more prepared for it.

45:36But my immediate reaction to it is that usually the multi-millionaire businessman that takes a bath, you know, like there was this guy in silver, I forget his name, The guy is weeded out of a hardware store in a shopping center, what it indicates is that the consumers, in their wisdom, have decided that they value that land or that capital or that whatever, more highly in the form of money than in the form of money. more highly in the form of a fish and chips place or whatever. Now, it doesn't mean that he has to go into welfare. It could mean that he'll go into fish and chips.

46:22Or it could mean that he'll go elsewhere where hardware is needed. See, that's the way... See, profits are like a leash that the consumer has over the business man. It's a leash, it's a traffic light, it's the directional signals, it's whatever you want to say. The way consumers can direct production, the course of production is not by writing to their MP, not by writing to their LA and saying we want fish and chips, we don't want hardware here, but rather by buying fish and chips and not by buying hardware, and this encourages people to get out of the one and into the other, and I don't think that it creates poverty, rather it organizes resources in a way. But if somebody is made to go bankrupt and they do end up in the bottom of the skin and government ending up handing them out money, where do you stop if government doesn't mention them?

47:14Do you say, no, don't hand out money? Or do you say, hand out money, we're going to get self-help programs? I see. What you're really asking, what is my view on welfare? And I would say that the view on welfare that I have is that many years ago, before our time, we used to have private welfare. We used to have church groups, religious groups, elementary institutions, and they would give out welfare of the sort. And the philosophy of welfare in those days was that welfare was a temporary help to a person who was down and out, and it was for the sole purpose of getting them back on its feet. And I think that was a very good thing, and I don't see any problems with that. We don't want to have a society where you don't have something.

48:01On the other hand, the way welfare is run now, people consider it to be theirs by right. Their children are brought up in a situation where the parents aren't the parents, rather the parents are kids and big brother of the state or big mommy or daddy or mom or whoever it is, is in a sense the parental role. And you have this intolerable situation of people on welfare for five, six generations. I think that many of the leaders of the black community and the native people's community are coming to realize now that if you wanted to come up with a real good way of committing genocide of the spirit without ever lifting a fist in anger, the best way to do it is to incorporate some sort of welfare system of the sort that we've got now to emasculate it and just take away the ambition and the spirit of a people To put them on the dole and say, look, we'll give you a TV set and a car and shut up and take the money.

48:58And don't work. And I think that's a horrible situation I'd be against. And I really don't feel that the small, entrepreneurial hardware store is in danger of that. I think he'll just go into a hardware store somewhere else or he'll switch into ladies' shoes or whatever else. So you call up the welter and take those people in and allow the American forces to operate and put them back in the factories for 14 or 16 hours a day with free America? Well, I'm happy to say I've heard that one before. What you're asking is if I may... What I'm saying is that if you want a totally free America to operate in terms of zoning, You disregard what I term to be the public interest, no matter how misguided it may be.

49:47Your Stanley Park, your Chinatown is going to wind up with a huge steel mill there. It's going to wind up with a chemical factory. It's a good piece of the real estate, a good economic piece of the real estate, and they can give a good return. Okay, you've made two points and I want to answer both because I think they're both very important to explaining the differences between us or my views. First on the wages. The idea is that if not for the glorious and wonderful minimum wage law and other progressive, marvelous legislation... I don't think it's a terrible minimum wage law. Oh, you do. Well, happy to agree, but then I must interpret you. I thought you were saying that in a free market setting, people would be working 72 hours a week in depraved conditions for very low wages. You were not saying that?

50:38I was. Oh, well then let me try and answer it. We're sitting too close to him, I see a certain resemblance there. But they're sitting on the right. I think that's another myth, but I'll get to that after I get to these two. Let me do that one first. I think that the left-right thing is a gigantic red herring. Pink herring? I don't know what color herring. Bad color herring. The way I see the political spectrum, the usual political spectrum has gotten the right here and the left here, and according to the political spectrum, if it's to make any sense, people who are close on the spectrum are supposed to be close to each other, And people who are far away on the spectrum are supposed to be far away from each other in some relevant respect.

51:27Now let me show you counter examples which just annihilate this right away. Who do we have? Well, what I want to do is think of people that everyone would think of as saintly, on the left and on the right. And then I want to think of people that everyone would admit with me are evil, but both on the left and the right. In the right, and my candidates, and maybe you can help me out, on the left the bad guy would be Stalin, and on the right it would be Hitler. Now right away we see a little difficulty with this spectrum, because they're very similar as far as I can see, and I'm sure you would agree with me that they are very similar, and yet if they're at opposite ends of the spectrum... The same names, they're both totalitarians.

52:12Yes, but not on the left-right spectrum. Hitler, look, the neo-Nazi groups nowadays, they are considered extreme right-wingers. I'm just reporting what I see in the paper. I'll later draw another spectrum that I think is much more sensible, in which these guys will be buddy-buddy because they really are buddy-buddy. We're from 39 and 40. Now, a heroic person that I consider on the left is Mother Teresa, who just won one of the, Nobel Prizes for Peace And a person that I would consider heroic Do you know, when Malcolm X was in his most racist days, he was asked Would there be any person who could join the black Muslims, any white person? Do you know who he said?

53:04John Brown was a minister in the 1850s in southern US and he was against slavery and he deduced as follows that the US government was supporting slavery, he was against it so he sort of declared war on the US government and he and his parishioners would take off after the various forts with guns ablazing and try to knock them off very heroic, I think, and also the people that ran the Underground Railway were extreme right wing businessmen by the abolitionists of the type of John Brown. So here I pose to you four people, two of whom I think are heroic on opposite ends and two who I think are not heroic, also on opposite ends.

53:50I think these two have very little in common, as do these two. The alternative political spectrum I would pose to you is as follows. Let's call this bad or totalitarian and let's call this the good axis or the good bad axis or voluntarist, voluntarist. And now I want to say that Mother Teresa and John Brown should be up there together where they belong, High on the good axis. Maybe one on the left and one on the right to indicate certain rhetorical and unimportant differences. And Joe Stalin and Adolf Hitler should be down here, to the depths that they so well deserve.

54:43Again, there are slight rhetorical differences that aren't important. So I don't see the views that I've been expressing as particularly left or right. I see them as up here, you might see them as down here, but at least I think we can agree to a way of looking at political reality which I hope to be neutral, i.e. descriptive. Now let me try to answer the points that I understand you to have made. One about Stanley Park and a steel mill in Stanley Park, and the other about wages in the absence of the market, or rather low wages because of the market. Are there economists in the group here? Mostly law people?

55:31Okay, well, we economists have a theory of wages. It's called the marginal revenue product theory of wages. Boiled down, what it says in effect is that the thing that determines wages, the most important determinant of wages is productivity. And that if there is competition, wages will tend to be driven up to the level of productivity. Now let me try to convince you of this by an example. Suppose that the productivity level of a person is $5. What are we going to do in this situation?

56:17We're going to move in on it. How are we going to move in on this guy? What are we going to do? We're going to raise our wages to 7 cents. That's it, precisely. We'll offer a wage rate of 7 cents Because we figured better that we make $4.93 an hour than he makes $4.95. And the next guy will offer $0.09 and maybe even $0.10. Maybe someone will go to $0.15. You wouldn't want to jump to a dollar right away because the workers will get uppity and they won't have any respect and all that. But that's the inexorable force of the market. It will drive the wage up to a point, in the absence of any cartel, that will diverge from $5 an hour to the extent of the cost of finding such workers.

57:08It's assuming a scarce labor supply. No, it's assuming that they have a positive productivity. They have an abundant labor supply. It assumes that they have some productivity. The reason we have abundant labor supplies, I'll later argue in another question, which is really not relevant to this exactly, is because of various government laws like the minimum wage law. That's the reason, and monetary policy and other governmentally created sources of reserve armies of the unemployed, to use the Marxist term. But to just come back to this, let's assume that the guy really can't produce $5 an hour. This means that if you've got him in your factory, your total product for the hour, instead of being $1,000, will be $1,005.

58:04That's what a marginal revenue product or productivity of $5 an hour means. It means that if you have him, you'll net this much, if you don't, you'll net that much. So you can make $5 off of him. And if this is the situation, I strongly suggest the well-received economic doctrine that the wage will rise to a level that diverges from $5 out an hour by no more than the cost of finding such people. And if you look around you, you'll see a lot of evidence for this. For example, take the Mexican wetbacks, the people that are trying to struggle across northward. take the farmers in the California valleys and in Vancouver who go down with trucks to those Mexican workers who are say worth $5 an hour but only earning five cents or 25 cents or 75 cents an hour.

58:59And they don't kidnap, there's no Iranian deal going on. Those Mexican workers come up here to Canada and to the US year after year because the amount of money that they're being offered is higher than they can get in Mexico. And the reason that the capitalists go down there, of course, is not, you know, to help the Mexican workers or anything nonsensical like that. It's in order to steal the workers away from the Mexican employers. And the only way you can steal them away is by offering them a higher wage. And I venture to say, okay, so now what is the effect of the minimum wage law? The minimum wage law. Suppose, suppose instead of a productivity level of $5 an hour, this person, it'll be a native person or a teenager or a black teenager, let's say is worth $2 an hour and let's say that the minimum wage law is, what, $3.35 now?

1:00:02This means that if you hire this person, he will net you $2 an hour, but you'll have to pay him $3.35. It's a losing proposition. You won't hire him. And I think that that's one of the great explanations of why we have such great unemployment right now for people with low productivities like teenagers, blacks, native persons, etc. Now to answer your question about Stanley Park and a factory in Stanley Park, Stanley Park is a beautiful park in Vancouver and the fear is that if we had privatized parks, if we didn't have public parks but we had private parks, there'd be no parks. Well, now I assume that people really benefit from parks, that they like parks, that the reason they show up on Sundays is because they really get some benefit from it.

1:00:56In order to make this process work, the free enterprise process, whereby profits can be a leash upon the producers, there has to be some way that the consumers can register their desires. There has to be some way in which they can move into the profit nexus. The only way for that to happen is for them to pay a price for park use. And this shouldn't shock you, I mean we do have private parks, do we not? Do we not have Disney World? Yes, we have Disney World. We're going to turn Stanley Crick into Disney World. Before you jump right over. No, I didn't say that. I think that this is... I think this is putting words in right now. I didn't say it.

1:01:43I think it was putting your foot in. Well, it's kind of you to say. Let me finish my point. I'm merely pointing to Disneyland as a case of private parks. See, if you really think that there would be no private parks in a free market situation, not like Disney World, but like Stanley Park, what you're really saying, in effect, is that people don't really enjoy them enough to pay for them. Mainly people, when asked to register their demand for it, they're willing to pay demands for chalk, they're willing to pay for this, for ties, for books, but for some reason they're not willing to demand private parks. of Parks. I would say that if that were true, it indicates to me that they really don't want them. And if that's true, well, maybe we do have an over-optimal investment in the number of parks we have in the urban area.

1:02:35I don't know. This is a prediction. I say if there were a private park market, people would be able to register their dollar votes. And in that way, we'd be able to have an optimal allocation of land for all sorts of uses. For housing, for agriculture, for parks, for what have you. Right now, the only way we can determine how many parks to have is through the political process. People vote for mayors, and mayors decide pretty arbitrarily how many parks there shall be, and we never know. Maybe we need more parks, maybe we need fewer ones. We can't know through the price system because the parks have been nationalized, they've been taken out of the price system. Why should you have to pay for milk? What is the rationale?

1:03:22Don't think that when you have to pay for them that society is a loser. The reason we have to pay for milk is to have some rational way for the farmers to know whether they should use the cow for their milk. And the only way they can tell is based on milk and meat prices. If milk prices go up relative to meat prices, we'll have more cows save for milk. If meat prices go up to milk prices, we'll have more cows slaughtered for meat. I mean, the only way you can tell whether to use a particular piece of metal for a paper clip or for a stethoscope is to have stethoscope prices and paper clip prices. You see, there are really two ways to know how to allocate steel between stethoscopes and some other use of steel, say automobiles.

1:04:10Now, we want cars and we want stethoscopes, right? Yeah, but I don't think you've answered my question, I've asked you why should people pay if they're current. I've answered it, and my answer was the reason that they should pay is that in that way is the only way they can register their demand. The only alternative to consumers registering their demands for automobiles versus stethoscopes, the alternative to the market way in which you pay for everything, is to have a bureaucrat decide how the allocation shall take place. As in many of the centralized dictatorships on the other side of the Iron Curtain, where they have amazing bottlenecks of all sorts of things due to impossibly difficult choices of plan.

1:04:56They have situations, well look, one very simple situation that water can lead to is take the land collectivization. Ninety-five percent of the land, the farmland in Russia, is collectibles. It produces seventy-five percent of the crops. Five percent of the land is non-collectibles. It's in the form of little plots that the farm workers have in their backyards. That produces twenty-five percent of the crops. I say it's no accident, it's no coincidence. It's an indication of the health of the system. And also, when you have a market, remember when we used to have price controls in the middle 70s, all of a sudden you'd have a shortage of the most odd things, like toilet paper would be in short supply, and paper clips would be in great supply, and there was no market balancing effect.

1:05:49You see, if we didn't have this market, if we didn't have consumers indicating, through a price system, the allocations that they wanted made of steel to paper clips, to stethoscopes or automobiles, we'd have to have central planners decide that. And it's a very difficult situation. It's an impossible decision to make as well as the market makes it. That's why I'm saying that it would be much better for people to pay for parks, The Theory of Money and Credit

1:06:45And in his view, and he's willing to risk his own capital on this decision, people want that park more for housing than for parks. There's no stone tablet that's on Stanley Park anywhere that says, thou shalt never use this land for anything but a park. God didn't say that that land should always be a park. It's up for individual human beings to decide the best allocation of various lands. And it's through the prices that we can determine. And another point I would say is don't forget to be poor because we have to pay for parks. And as a society, all that will happen is that the money will wash out and we'll now have a better way of determining the allocation of farmland, parkland, housingland, etc.

1:07:32Just as we now have a good way of allocating the use of styrofoam. Should it be put in cups or boats or what? How can you say that in terms of knowing what people want, their willingness to pay, how much power plan they want, if you take a situation like Harlem, how do people in Harlem know whether they want power plan or not because they've never seen a park? See where I'm getting it? Well, I mean, you're just wrong factually. Central Park is in Harlem. I mean, Harlem is littered with parks, public parks. There are public parks and public schools all through Harlem.

1:08:20I mean, you're just wrong. But forget about the factual point. Let's make the theoretical point that the poor wouldn't be able to afford parks. Well, just anything. I guess the point I'm trying to make is that can you really Do you ever want something that you don't understand what it's all about or that you've never been exposed to? No, you can, and that's the function of advertising. Another favorite of some of the people here. I think the function of advertising is to acquaint people with things that they've never heard of. I mean, Galbraith had this thing about advertising, it contrives wants. And he's right, it does contrive wants. I mean, I'm a sort of an addict of Mozart and Bach. I confess, I love them. But had they not been advertised in various ways, I might not have known them.

1:09:09There are many people that are cut off from this because the advertising isn't as general as it might be. We don't get born into this world, naked, kicking, and screaming with a love for whatever, for whatever the things that we now have come to love. Most of those things that we've come to love are through advertising. Well, I guess, if you finish now, because I don't want to be accused of mopping on you. If you have a certain income distribution, and that income distribution is sort of skewed in one direction, a lot of people have plenty of it, and a few people have a lot of it, and a lot of people don't have that much of it, all right? They're going to want certain things, and advertising and industry is going to respond to those wants.

1:10:00I guess what I'm saying is that their wants are shaping the preferences of people who can't really make wants known in the marketplace because they don't have the income. You know, it's not willingness to pay, it's ability to pay. Okay, that's a very interesting point. Let me answer it in two ways. One with regard to zoning, and the other just in general. Now, take zoning and the poor. The analysis of the various writings, I think I mentioned this in my talk, shows that the poorer the neighborhood, the more likely they are to vote against zoning. Why is that? The reason for that is that when you have public zoning, and they have a zoning law that requires, say, that you put two acres in each house.

1:10:51Well, we know who gets frozen out of that sort of a scheme. We know that it's impossible for a poor person, let alone even a middle class person, be able to afford two whole acres for his home, whereas the very rich can't afford it. So we see that zoning, paradoxically, government zoning, is hurting the poor, not helping. And let me mention another point to you. You see, you might think, well, the richer are rich than the poor. That's why they're rich. OK, we agree. That's a basic postulate. But from that, you then go on, I think, to a wrong deduction. And you say, therefore, they can always outbid the poor for anything. And that's where you're wrong, I think. See, the way the poor can outbid the rich for land is by using it more intensively.

1:11:41It's true that if a poor person had If you had to outbid a rich person for a house with two acres on it, he'd never make it, and that would be the end of it. There would be no contest. However, if the poor person can gather other poor people with him, or through the efforts of an entrepreneur do this, and instead of putting one house on two acres, put 300 units on two acres in a high-rise or in some other way, more intensive use of the land, Then, 300 poor people might well easily be able to outbid one rich person for that particular blend. I mean, you have to realize that the poor can outbid the rich for some things, otherwise the poor wouldn't have any clothes, wouldn't have any cars, wouldn't have any TV sets, wouldn't have any food. I mean, they obviously do have these things, so we have to account as social scientists for the way that they get them.

1:12:30And the way that they get these things is by ganging up with sheer weight of numbers and outbidding richer people. As in this case of zoning. I mean, if we don't have zoning, as the poor people don't want us to have it, then people are free to put up two or three hundred units in an acre or two acres or what have you, and then the poor can afford it. If we have zoning, we get exclusionary zoning where the law insists that you put an acre or two up of the house and the poor are frozen. So that sort of goes against what you're saying. Another point I want to make. This is a constant refrain. Whenever I or my colleagues have advocated privatizing something, the first question that comes up is how would the poor afford it?

1:13:15I venture to say that had the government been in the business of making sneakers for the last hundred years, since the invention of sneakers, and someone crazed maniacs such as I came and said well you know really the government doesn't have to make sneakers it's not really a crucial national interest the government would be better off paying more attention to crime and judicial things than the sneakers people would start saying well how could private enterprise do it I mean who would decide how many holes to put in the sneakers you know who would decide on the length of the laces or the canvas or of the Rubber, and then the final death blow to this idea. How would the poor afford sneakers? I mean, you could use this argument against any privatization of anything.

1:14:01And if you take this argument to its logical conclusion, you would advocate nationalizing everything, as they do in certain other countries where there's a lot less freedom and where the poor have a lot less. So I don't think that you're making a very good case. I don't mean you personally, but I I don't think a good case can be made for saying that an argument against having private parks is that the poor couldn't afford to go to parks. I guess just, if you could give me an example, you said that 300 poor people got together and outbid a rich person for a piece of land. You used the word an entrepreneur to get them together. And I guess my question would be, where are you going to get these entrepreneurs, because where's the money going to come from for their profit? Oh, well, 300 poor or lower middle class people have got a lot of money.

1:14:53I mean, even the Harlem numbers rackets where they bet a penny on a number is a very, very lucrative thing. And by the way, the private betting pays off double what the public, what you might call it, off-track betting pays on these numbers and gambling. So even in that case, they do twice as well. Now, I'm talking about the mafia and the underground. So I assume that there's just go to any neighborhood where there are high rises and where there's an intensive use of land. And you'll see an example of the poor having outbid the rich for that particular land that they have. If we had zoning there, they would have had a much more difficult time. So contrary to the expectation, I don't think it can be maintained that these laws and regulations are in the benefit of the poor.

1:15:40I think just the very opposite is true. Dr. Block, perhaps I ought to interject at this point, since this class was scheduled to finish about 6.15, I imagine there are people who want to get rides. Perhaps I'll take the prerogative of giving you the last question on a subject, and it's one that follows me, but I'm sure you have a ready answer to it. I'll pick up one. Economists often tell us, when they talk about willingness to pay, that willing to pay is also a factor of the distribution of wealth in the first instance. So my question to you is, if that is in fact the case, is it possible to get back to a market economy unless we redistribute wealth on an equitable basis as a starting point?

1:16:37Okay, if you'll permit me, I forgot to answer one question, namely the cartel of employers. And I'll have nightmares tonight if I don't answer that. I'll have fears that, you know, it will be thought that I couldn't. Let me just answer that one, and then I'll talk about redistributing wealth. I'll do it as quickly as I can, or am I going to lose everybody? Well... Perhaps those people who do have arrangements for lives will air my stuff out. Yeah, and the others can gather closer to me, but not too close and we can talk about it.

1:17:33Okay, well, with regard to the cartel, first, of employers, let's suppose that the employers band together and let's say the guy is worth $2 an hour and the wage has already been bid up from 5 cents and now it's 50 cents and a group of businessmen gets together, a chamber of commerce or what have you, and they say, hey look, you know, this can't last, this is horrible, this is obscene, look at this, the workers are making 50 cents an hour, where Where will it all end? It's a horrible situation. We've got to band together a promise that will never pay a person more than $0.50 an hour. I think that first, if you read the legal history of cartels, you'll find one interesting point, that no cartel unprotected by the government has ever lasted more than a few weeks. I mean literally weeks, not even months. Just look at the history of cartels in any industry. Now let me explain why cartels The reason they're inherently unstable is they create a target for other people to aim at.

1:18:37Because at 50 cents wages, and at $2 an hour productivity, this cartel is still making a killing of $1.50 an hour, triple the actual wage. The breaking of the cartel will come from two sources, from within and from without. Now, from within, each guy, well let's suppose that we people in the room, there are about 20 of us, are all the cartel members, okay? And let's say we each have 100 workers at 50 cents. What are you going to think? You've got 50 workers, are you happy paying 50 workers 50 cents and making $2 an hour off of them? You've got 100 workers. Are you happy paying them 50 cents each?

1:19:22You're not. You'd like to have 101 workers, wouldn't you? I mean, again, you're a fat capitalist pig now. You're not a nice, normal person, right? You want to make more money. And the only way to make more money... I mean, each worker on the hoof is worth $1.50 an hour. The thing to do is to get more of them. And one way to get more of them is to break your cartel Cartel and say, yes, yes, and I'm an upright upholder of the cartel, and then you go to the worker on this line and say, psst, I'll pay you 51 cents, come work for me, but don't tell anyone else. That's one way that cartels break up from internal dissension. There's one case that this argument doesn't apply and that's the oil cartel, but that's not a cartel, the OPEC, but that's not a cartel of private interest, that's a cartel of government and it works very differently.

1:20:16So one source of the breakup of the cartel is internal dissension, backslashing, etc. The other source of the cartel is are there businessmen in the next town or in the next country? And remember, we have evidence that people will go a country away, they'll go thousands of miles away to get these workers. That's why the people in the Fraser Valley and in the California valleys are going to Mexico to get them. So that's the second source of a break up of the cartel. Thirdly, there are always people sort of on the verge of being employees and employers. They're in the middle ground. They could swing either way. They're say self-employed or they've got one worker or something. They too will now, if they were on the margin between employee and employer, they'll switch into employer and try to get these workers away.

1:21:07You see. So that's why cartels are inherently unstable and will break up their own way. Now with regard to redistributing income, I think that there's a book by Robert Nozick, What Nozick says, and I agree with him, is that redistributing money is basically incompatible with freedom, and this is how he arrives at that.

1:21:55Suppose we have any income distribution that you want, initially, okay? First of all, there are problems even with income distribution, because why have equal income distribution? I mean, this guy is much handsomer than I am, he's got three times as much hair as I do, is that fair? Hey, I'm in law, huh? I'm in law too. And he's in law too, I mean, you have to, you know, kick me when I'm down and all. Look at that, he's a marvelous specimen of the human race, and I'm sort of a wretched little sniveling person. I'm not talking about the end product, though. I'm talking about the basis from which you start your system towards.

1:22:55My first attempt to show the difficulties of it is that it's all too easy to think in terms of money income, just equalizing money income, or money wealth. And there are problems. I mean, there are people that are handicapped, blind, lame, best, what have you. And these are serious problems. Shouldn't they have more? Then there are other people that are of naturally happy dispositions. And they have less, to compensate the sourpusses for their miserable situation. Only the potential of those things are already worked into your market system. Well, those things aren't worked in any market system. Then why take them as a basis for distribution? Well, because we have in our minds a yearning for equality, or at least some of us do. Well, we're only talking about economic efficiency and achieving it, and the effect that unequal distribution as a starting point disturbs the achievement at the end point.

1:23:48I don't see that at all. I mean, it seems to me that economic efficiency has got nothing to do with the distribution. Suppose one person had all the money and everyone else starved to death. This would be neither more nor less economically efficient than any other income distribution. I think it's sort of a category mistake. I mean, you've got efficiency on the one hand and you've got income distribution on the other. But aren't economists these days saying that you can't isolate the two in the way that you want to do? And that once you, when you're trying to determine somebody's willingness to pay, his initial distribution of wealth is a factor that he takes into account when he decides on his willingness to pay.

1:24:34I'm afraid we're all going to get cross purposes. I really don't understand the point. You want to take all non-efficiency arguments and put them off to one side. Well, not put them off to one side and not discuss them. I want to distinguish them from efficiency arguments and I want to discuss moral arguments as well. Namely, distributional things apart from efficiency. And that's what I was trying to do when you said I was off the topic. What I'm trying to suggest, and again, I'm not an economist, so you can press me if I'm wrong, my limited reading on the subject seems to suggest that your distribution of wealth affects your willingness to pay, which affects the ultimate allocation of resources, So that the traditional dichotomy between achieving an optimum allocation, i.e. efficiency, and other things that economists call distribution, breaks down at some point, and that is one point at which it does.

1:25:42Could you be referring to the Keynesian, what do they call it, marginal propensity to consume, or something like that? Well, I'm not so scared enough to know what that is. This is some old nonsense that Keynes came up with that the idea was that what you do is you redistribute money from, actually from poor to rich would work, no, from rich to poor. And the view is that the poor would spend a higher proportion of their money than the rich, the rich would save it. And he had this view also which is completely crazy that saving is evil and somehow consumption is the only thing that makes the economy go. So if you take $100 from a rich person who would only have spent $50 of it, and you give it to a poor person who spends $100 of it, you double the aggregate demand and this is the way to spend your way out of a recession or a depression.

1:26:36Now this I could see as a way of mixing redistribution with economic efficiency. I mean if it were correct it would certainly be relevant. I think it's all incorrect. I don't think that what creates a viable society or a rich society is spending. I think just the opposite. It's saving and investing in capital, which keeps us different from the beasts of the field. So I would say Keynes was just about dead wrong that on his view what you ought to do if you're going to do any income redistribution is to redistribute it from the poor to the rich. because they'll save more. But this is a very different question. You see, what I was trying to answer was not the question of the interlinkage between efficiency and income distribution, but to just talk about the problems of redistributing income. And if I could return to that just for a second, one of the problems is that if you just talk about redistributing income and you

1:27:39leave out all these personal things, you get into problems because it's sort of The same motive that wants you to redistribute money from rich to poor will start warning you to redistribute handsomeness from rich to poor. I mean, suppose that there was a machine, and I'm giving you a cross section of this machine, and here's a little switch. And you put, what's your name in it? What's your name? Me? No, this handsome fellow here. What's your name? Oh, Rob. You put Rob and Walter, I'm Walter, he's Rob, you put us both in this machine, and you press the button, and you transfer 10 units of handsomeness from him to me, who need it more.

1:28:25Or 10 units of intelligence, or 10 units of happiness, or whatever of these kinds of things. You see, what I'm trying to do is to indicate what the slippery slope is of income redistribution. If you're in favor of income redistribution, not from the victim, not from the thief to the victim, but just from one person to the other on the grounds that one is richer than the other, that motivation will lead you to transfer not only wealth and income, but also all these intangibles, intelligence, happiness, musical ability, what have you. What I'm saying is that the motivation behind those people that want to redistribute money from rich to poor seems to me that the logical conclusion of that is to not just redistribute money but to redistribute other things.

1:29:24Why is it so insolent? Because I think it's not logical. I think that's illogical, bringing those extraneous things which are irrelevant. But why? My answer to the question why is because it seems to me that the people that want to redistribute money from rich to poor want to help the poor. Well, people can be poor in lots of ways beside lack of money. They can be poor in intelligence, they can be poor in happiness, they can be poor in musical ability, and for many people these poverty things are much more important than mere poverty and money. But those poverty things do not affect their ability to pay in the marketplace, do they? No. Well, then how can you... Oh, well, you're getting back to his point of some relation. Just to my satisfaction, denying that there was any, and I'm trying to talk just about the moral issue itself.

1:30:13But I agree with you, if I were sticking to his original point, what I'm saying is irrelevant. But I thought I answered that by saying that there was no connection. Probably the best strategy at this point is to accept your explanation of my question. I think we've run well over our time. And I would like to thank you for coming today, even though our audience has anticipated one of the objectives of sessions like this is to stir up some interest in both our banking and I think from that account this is going to be a success.