Monopoly and Competition

0:00I'm delighted to be here. I'm honored and privileged. I go way back with this book. I met Murray Rothbard in 1966, and I started reading the book soon after. And the problem I had with it was that it really blew me away. The way I see it, it's sort of a combination of Mozart, Bach and Handel, my three favorite composers all rolled into one and in print. and to just give a personal story at the outset, I was just so impressed with this and so amazed that he would even want to speak to me and all he wanted to be was friends with me, but I couldn't get that through my head, you know, I couldn't call him Murray, he kept saying call me Murray, call me, I couldn't do it and my way of trying to be worthy of being in his august presence was to criticize him.

0:54Yes! I know it's hard for you to believe, but that was my way of being friendly with somebody, to criticize him, and, you know, he was just so patient with me, it's amazing that he tolerated me for so long, and I'm still doing that, and it's my way of being friendly, but it's a little weird, but what the heck. Chapter 10 is 125 pages. I really think that if we were going to have an entire week seminar on any one of the chapters, this could be a good candidate. It's very long. It's got a lot of stuff in it. I'll never be able to do justice to it if I had 10,000 years, and certainly not in 40 minutes or so.

1:39If I had to summarize it very briefly, I would do it in the form of a joke. And here's the joke. It's a two-part joke. The first part of the joke is there were three Soviet prisoners in jail in the Gulag, and as prisoners do, they were comparing notes as to why they're in prison. So the first guy says, well, I came to work late, and they accused me of cheating the state out of my labor services. So the second guy said, well, I came to work early, every day early, and they accused me of brown-nosing, put me in jail. The third guy said, I can work every day exactly on time. And they accused me of owning a western wristwatch. They put me in jail. Second part of the joke, there were three U.S. prisoners in jail on antitrust violations.

2:27First guy said, I charge more than everyone else and they accused me of gouging, profiteering, exploiting, withholding and restraining trade. The second guy said, well, I charge lower prices than everyone else and they accused me of predatory price cutting and cutthroat competition. The third guy said, well, I charge the same prices as everyone else. A little difficult to see how that could be given these other two guys, but it's just a joke. And they accused me of colluding, cartelizing and conspiring. The point, I think, is that this antitrust law on the basis of which monopoly theory is predicated, neoclassical monopoly theory anyway, is dead from the neck up.

3:15I mean, if you can be put in jail for anything, higher, lower, the same prices, I mean, a law is supposed to distinguish between that which is legal and that which is illegal. This doesn't do that. This just can put anyone in jail for any pricing, pretty much. So, the whole thing is highly problematic, to put it politely. Who else restrains trade? Well, monogamous marriage is a restraint of trade. Because when you get married monogamously, you each agree not to trade other people on certain aspects of economics, given economics' broad enough interpretation. I think one good way of debunking things is to make things like this reductios, and the way you make a reductio is to apply the logic to an area where they don't apply the logic to.

4:14So I think when you realize that you can put married people in jail for antitrust, restraint of trade, that's just another way of saying how silly it is. Okay, in the chapter, the first thing he starts off with is consumer sovereignty and individual sovereignty, this guy, Hutt, who has done great work and other things, but here he's not so good, and I think Murray quite properly criticizes him, and Murray says, in effect, you know, what's this individual sovereignty, rather, what's this consumer sovereignty? It should be individual sovereignty. Why, you know, why put consumers up on a throne? Why make consumers the king when the free market makes everyone a king. The next thing he gets into is this business of coffee burning.

5:01Sometimes people burn coffee, producers of coffee burn coffee, and this seems to be a horrible thing, a violation of consumer sovereignty. And Murray says, well, why burn? Burning is an indication of excess production. They should have produced less, which is hardly satisfactory to the people who who were objecting to the burning in the first place. That would be like withholding to produce less coffee than somebody thinks that should be produced and that is presumably problematic or evil. Now Murray gets into a more technical part of this chapter when he says that entrepreneurs, all of them, utilize inelastic parts of the demand curve. So I thought I would review elasticity a little bit and one of the things, here is sort of a summary way of looking at elasticity for a downward sloping part of the demand curve.

6:02If total revenue goes up it's elastic, if it stays constant it's unitary, if it falls it's inelastic and what elasticity is, is the percentage change in quantity divided by the Percentage Change in Price. So what Murray is saying is that if people are objecting to a price rise, all they have to do is go from C, a relatively inelastic demand curve, to D, a more elastic demand curve. And if they don't do that, it ill behooves them to be complaining about this in the first place. A little bit more about elasticity. What I have on the top diagram is a straight line demand curve and it shows that the elasticity along it varies from infinitely elastic at the top to zero elasticity at the bottom and in the middle the elasticity is one.

7:06And the way I put the two together, namely this stuff over here with this thing that I'm reviewing from the first slide is what I have in the in the top is price and quantity and in the bottom I have price and quantity or price times quantity which is total revenue namely what I do is I make a box here or a square or a rectangle and the rectangle here is a height so this box would be this height this smaller box would be that smaller height and you could see that at this point a tangency to the The top of that curve would be flat, so it would be unitary elasticity. This is just by way of review. I'm sure this is old hat to most of you, but it might be new to some people.

7:51Just let me take a show of hands. How many know this stuff backwards and forwards? Okay, about half of you. I know that there are some people here who are not into economics and philosophy and other things, political science, so a little bit of a review. For the people, I sometimes fool my undergraduate students by asking which curve is more elastic, A or B. So let's solve this democratically as we solve all problems. How many say A is more elastic? How many say B is more elastic? How many say what is the correct thing is? Where on the demand curve are we going?

8:37No, the question, he asked where on the demand curve are we going? I said, which demand curve is more elastic, A or B? And the answer is B. How many say B? How many say A? The right answer is to go back here. You can't say because elasticity is very, rather demand curves vary in elasticity throughout them. So both of those curves, A and B, have the same elasticity. They may vary from zero to infinity and go through unity. Okay, just a little trick question. There is a sort of a problem with something that Murray says somewhere, if I can fish it out.

9:32Yeah, what he says here...

9:42Whoops, I went too far. This power is... There has been an unfortunate tendency of writers to refer to an elastic demand curve or an inelastic demand curve without pointing out that every curve has different ranges along which there will be varying degrees of elasticity or inelasticity. But that's not really true as stated because there are several counter-examples to that, namely here is a rectangular hyperbola. It's not as well drawn as it could be, but I'm not an artist, but I did my best. And there the elasticity is constant at one because the boxes drawn on it at any point would be the same size if I drew it correctly.

10:30And over here the elasticity is infinite, and over here the elasticity is zero. So in order to make Murray's thing correct, it's just a sort of a typographical oversight. I don't think it's a serious problem. Everyone knows this, but I think the book will be reissued. And when it is reissued, perhaps that should be changed. Okay, now that we've got a sort of a review of elasticity, let's talk a little bit about monopoly. And what we have with regards to monopoly is three definitions. The first definition is that we're all monopolists because we're all unique. Walter Block's services are a little bit different than Joe Salerno's services, which are a little different than David Gordon's services. So we're each unique, we're each a monopolist.

11:16We should all go to jail for that, which is silly, because it doesn't make any real sense. But that's one possible definition of monopoly, uniqueness, and we're all monopolists. The second one, the one that Rothbard adheres to, and the one that I adhere to, and I think the one most Austrian economists would adhere to, is that monopoly is a grant of state privilege. The Duke of Flatbush or somewhere would fight the good fight against the Duke of somewhere else, and he would get a monopoly of salt or candles or whatever, And this means that if anyone else tries to make salt or candles, they go to jail. Perfectly coherent sense of the word monopoly. And there are a whole bunch of typographical errors where, in my view, Murray doesn't put quotes around monopoly when he's not using it this way.

12:09In other words, this is the only legitimate use of monopoly. The third use of monopoly is he who achieves a monopoly price. And here Murray says, well, there ain't no such thing as a monopoly price. How do you distinguish a monopoly price from a non-monopoly price? The way the mainstream types do it is they do it that way. They have this diagram. Let me take a show of hands again. How many are familiar with this and know why the curves wiggle the way they do and why marginal cost rises and average cost pulls up and all? Raise your hands if you... Okay, most people are familiar with that. Okay, so what we have here is where supply and demand equal, there's the demand curve, the supply curve is the upward sloping marginal cost curve, we get this point C for competition or perfect competition, and here we get the, boy that's mislabeled, this is the quantity of competition, there's the quantity, well I'll get to that in a second, so this is the quantity that the perfectly competitive industry produces,

13:21And this is the price, PC, the price that the perfectly competitive industry would do. And we get the monopoly, M, for PM and QM, is where the marginal revenue curve hits the marginal cost curve. And you go up to the demand curve and you get the price and the quantity. Well, what Murray says is, this is all well and well, he doesn't say this is all well and good, he says there's a lot of nonsense. But all it is is a bunch of curves. Out there in the real world, you have the price of beans is 50 cents or the price of corn is 75 cents. Is that a monopoly price or a competition price? And there's no bloody way to know. You can draw all the curves you want, but there is no distinction.

14:08Now, the mainstream say that there are four criticisms of monopoly and I summarize them here under M&C. Notice that the monopolist price is higher than the competitive price. PM is higher than PC and somehow a higher price is no good. Give me a break. I mean, where do they get that from? And Q, monopoly has a low Q and the competitor has a higher Q and somehow more quantity is better than less quantity. This is very strange. Some, I was once having a debate with someone and said, well, how do you know The difference between the competitive price and monopoly price is, well, whatever the price is in a market where you have a concentration ratio that's very low, rather very high, a for-firm concentration ratio or a Herfindahl index that's a little too high, just raise the price and that's a better, that's the monopoly price.

15:03Well, Murray's answer was, well, suppose you, if you knew that the antitrust division would do that, you would locate here and they would push you up here. So, it's sort of being at sea without a rudder. There's no objective criteria to get between a monopoly price and a competitive price. Now, the third criticism of monopoly is that the monopoly profits are FPMMG, whereas the competitive price profits are zero, and we all know that profits are evil. I'm not fully serious here, and that's the other criticism. On the other hand, if the monopoly is sold, it'll be sold at a price that presumably capitalizes the monopoly profits, and we will then move to this AC, the red one, and there'll be no profits at that point.

15:51So the real problem is not so much price or quantity or profits, the real problem is the deadweight loss. And the deadweight loss is AMC, this sort of triangular area here. And when you mention deadweight loss to a mainstream economist, they start growling and snarling. It's sort of like those guys who take that pill and they turn into a werewolf, you know, their hair grows longer and their fingernails, you know, they start... Deadweight loss is, you know, an abomination. I don't think God favors deadweight loss, you know, from their point of view. And this is a misallocation of resources. Well, there are problems with this. Many, many problems. First of all, what they're saying is that QC is the right amount to produce, QM is too little.

16:40Now, we do have a theory that in the ex-ante sense, if I trade you this pen for your wristwatch, I like the wristwatch more than the pen, and I gain the value to me of the difference between them and you get this wristwatch for the pen, and we have mutual gain from voluntary trade in the ex-ante sense. Fine. But what they're saying here is that when trades don't take place, this shows a misallocation of resources. Well, right now, I have this watch and Jeff Herbiner doesn't have it. Now, he could have it, but the presumption is that since I have it and he doesn't have it, and we didn't trade, that somehow this is a misallocation of resources. This is nonsense on stealth. What they're saying is not that you can deduce or infer benefits from voluntary trade, but that you can induce or infer misallocation of resources from non-trades.

17:36It's as if I traded them nine cans of corn and I refuse to trade any more. The plain state of rest and they're saying, well, you should trade more. Well, look at this from the point of view of the boxer. The boxer wants to fight nine times a year. And the antitrust people say, no, you have to fight 12 times a year. Otherwise, you're withholding. This is highly problematic. The second one is interpersonal comparisons of utility. What they're saying is that people value it at the level of the demand curve. It only costs other people the marginal cost and therefore there's a lack of utility. Well this commits the fallacy of interpersonal utility comparisons.

18:23Another problem is for the Austrians, once the thing is produced, it's got no cost. Remember, what the cost is alternatives foregone, and if you've already produced it, there's no alternatives foregone. So, what we could do if we took that into account is move to a slightly different diagram here where there are no costs. The marginal costs and the average costs are coincident with the horizontal axis, But still we have evil monopoly because the marginal revenue curve and the marginal cost curve hit here and so you get this M, P, M, Q, M and this would be P, C and Q, C. So again we have the deadweight loss but so we now don't have the problem of costs in the alternatives foregone sense.

19:21Let me start that again. Most economic textbooks in the beginning, when they talk about cost, they say it's alternative cost foregone. But then, another chapter later, or a couple of pages later, they give you this stuff, which completely violates that. There is a book, I think Thirlby and Buchanan, which goes into this. Buchanan is not an Austrian. He thinks Austrian is a cult, which is a whole other issue. But on cost, subjective cost, he's pretty good or he's pretty Austrian. I guess he's a cultist on that one issue. Okay, another problem with this diagram, and this is something that my colleague and good friend Bill Barnett and I just wrote an article on is, see, when you have this, let's look at the demand curve here and the marginal revenue curve here.

20:15The reason they diverge is every time you sell one more unit, you go from here to here. What you do is you sell one extra unit, but all the previous units you get one penny less for, right? So the marginal revenue diverges from the average revenue. The demand curve is really the average revenue curve in neoclassical economics. So you get a marginal revenue curve. Well, what Bill and I are saying is, look, this deviation, this lowering of price, it's really a cost. So, what we're going to do, notice here there's no marginal revenue curve, I've just got it in dots. The real way to deal with the divergence of average revenue and marginal revenue is not to make a marginal revenue curve, but rather to make marginal costs higher, to indicate the losses that you obtain when you sell one more unit given that we're not having, what is it, no price discrimination anymore, you have to sell the price, have to sell the quantity for the same price.

21:23So if we get the proper marginal cost curve, notice what we get. We get the point M, another attempt at a reductio ad absurdum, we get the point M is the optimal point And what we ought to do is put the perfect competitor in jail. So I think the title of our paper was, you know, put the perfect competitors in jail or some, you know, non-historical title like that. And you can also illustrate that same point here. Namely, if you don't have a marginal revenue curve, the old marginal cost is over here because sunken costs are sunk. But the new marginal cost curve takes up over there and hits M. So again, the point that they say is a misallocation of resources, we say is really perfectly competitive.

22:10I mean, the whole thing is just sort of kablooey because when you start with, what is it garbage in, garbage out? When you start with garbage and you infer or deduce logically from it, you get garbage results. And that's what we're trying to do with our reductios.

22:34Another problem that Murray says, if you take seriously this diagram, there it is, if you take seriously this diagram, Murray says, well look, if this is the optimal point and every company is monopolistic to some degree or another, we ought to have unemployment in general equilibrium, which ought to be a problem for the mainstream. You know, if everybody is withholding, if everybody is restraining trade to some degree or other, the monopolists do it more than the quasi-perfect competitors, but everybody is cutting back, well, there ought to be unemployment. Another point that Murray gets from Mises is what I call the grumbler.

23:20I think this is a point made in a previous session. Notice who you're blaming for not producing enough, the people who are producing pretty much. If you want to blame people for not producing enough for this, If you're not producing enough of this, go blame someone who's not producing any. If you think the price of oil is too high or computers are too high, don't put those people in jail, put the people, put McDonald's in jail for not producing enough oil. I mean, it makes more sense if you're going to, again, if you're going to start with that logic and you're going to deduce correctly, you would be putting anyone else in jail except for the so-called monopolists. This is the point that Peter made about the circularity of these curves, which I won't go into.

24:07Okay, the next point I want to make is my favorite diagram of Murray Rothbard's. And my favorite diagram of Murray Rothbard's appears right here. Let me make that bigger. I, I don't know, if, if the Mises Institute had a flag, they were going to make another, a black flag. They should put that sucker on the flag. It's just such a gorgeous flag. Because what they're saying is, see, what the mainstream types are saying is that there's an inefficiency of monopolistic competition because what you have is an average cost curve is the familiar U-shaped cost curve.

24:55Again, this is just in mainstream economics, but an awful lot of what Austrians do is critique mainstream economics. I like to tell my students that when they take our courses from Austrians, not only will they get the mainstream stuff, but they'll get critiques of it, which will make the mainstream stuff come even more alive than if you just tell it without a critique. But the reality of graduate education now is that an Austrian must know the mainstream, otherwise they're sort of not with it. But you see the point B is the most efficient point. But if you have a downward sloping demand curve, the only place that it can be tangent is at some point A up and to the left of B, which is inefficient. And what Murray is doing in effect, and now I'm going to exaggerate greatly what he did, is I'm going to have an average cost curve in two ways.

25:51The top one is an average cost curve, but it's not a smooth curve. And the second one isn't smooth either. And the point is that you can have, well, not a tangency, but a touching of a downward sloping demand curve and this sort of an average cost curve if you have it a kinked curve rather than a smooth curve. And here Murray comes up with something, a constant refrain among Austrians, and that is that what the mainstream is doing is that economics is supposed to be the dog and the tail is supposed to be math, namely, math is supposed to serve economics, but here the dog is mathematics and the economics is serving the mathematical dog, if I could put it in such terms. Why do they like smooth curves? Are they smoother than we are?

26:38No, it's because smooth curves, you can differentiate them and you can have tangencies, whereas curves that are more realistic, that show human action, which is not infinitesimally divisible, gets this sort of a result. And so the inefficiency of the market is solely a function of indivisibility, The inefficiency of the market here is solely a function of the smoothness of the curve. When you make the curve non-smooth, then you don't get any inefficiency. Now there was this horrible curve.

27:25The one I originally showed you was from an earlier version. The later version of this is a very poorly drawn version of it, I'll get this in a second, here it is. See, if you look at your page 734, that's a smooth average cost curve. The guy who drew that should be shot. I've just joined this group called Libertarians for Force and Fraud, so it's okay to shoot people for drawing things badly. But in the next revision of this...

28:10Ah, okay, I didn't know if you had, but the next one should be one of those two versions. The earlier version was a little bit better, but it wasn't as sharply... Good. Okay. Well, we can trust Joe on artistic kinds of things.

28:33There are other kinds of monopoly that Murray covers. Locational monopoly, natural monopoly, unions, patents. I'll not cover locational monopoly. I will cover natural monopoly in my section on and privatizing courts and police, which are said to be natural monopolies. I won't do unions even though it's a beautiful, beautiful 30 pages in there, a magnificent 30. If you want to read about unions, read those 30 pages. And I won't do patents now because I've been asked questions about patents. So I will now get to the formally written questions. Okay, the first one is, can you contrast Rothbard's position on copyright with that of Mises and Hayek?

29:18Well, I was too lazy to look up Mises and Hayek on patents, so I can't, but what I will do instead, this is a good professorial type of thing, whenever you can answer a question or are too lazy to look it up, just answer a different question and you can fool the ogle sometimes. Well, the question I'll answer is, what's the difference between Rothbard and Kinsella? I regard Kinsella as the main man on patents and copyrights. Kinsella won the award for the best article in JLS, QJ? JLS. But before I get into that, I just want to tell you guys a little story. My first meeting with Murray at a formal convention was at the New York State Economics Convention.

30:06and he gave a paper and I was his commentator and I forget the exact point that I made it was in my one of my very first articles in around 1973 or four on on ethics ethics and economics and Murray gave this point and I criticized him I said well you know professor Rothbard is right here but he made this mistake and then when Murray came to reply said well I accept professor and Joseph Block's criticism. This is remarkable. I mean, if Ayn Rand were giving a paper and some Randian randroid criticized her paper, that would be it. The next episode was Hoppe. Hans Hoppe came up with what I regard as a brilliant, magnificent insight about the argument from argument, which I won't go into now, but it's sort of an establishment of the principles of libertarianism.

31:03And Murray had written about this years before, and Hans's was clearly better than Murray's. And what was Murray's reaction to this? Was it, well, you know, Hans is a young pup in the hell with him, or, you know, he disagrees with me, therefore he must be wrong? No. Murray took the attitude, well, Hans is right, Hans is magnificent, and Murray defended Hans's insights against all sorts of critics. Well, Stefan Kinsella wrote his paper after Murray passed away. Murray passed away in 1995, Kinsella was 2000, 2001, something like that. I have to believe that if Murray were alive when Stefan wrote his paper, Murray would have said, you're right, I was wrong, and I take the Kinsellian position, and for those of you who want to read more about patents and copyrights, go get Kinsella in the JLS.

31:55What Kinsella is saying is that property rights only apply to scarce things. And information, recipes, once they're out there, are no longer scarce. So if one of you were to take my book, Defending the Undefendable, and print it, without my permission, would you be stealing anything of mine? Kinsella says no, I say no. If one girl puts her hair up in a ponytail and another girl then sees it and puts her hair up in a ponytail, not that the second girl goes to the first girl and disrupts the first girl's ponytail, just puts up a second ponytail, did the second girl steal anything from the first girl? No. Nothing tangible. And the whole point of property rights is to reduce or eliminate disputes as to who owns property rights. The second girl owns So what's her head of here? Not the first girl. Similarly with copyrights for music or for books or medicines, pharmacies, whatever it is.

33:02Now, here's another question. I sort of lost my track of thought. Let me start again. Murray took the view that there was a difference between copyrights and patents. What he said is patents are illegitimate because if there were two people who were inventing the bicycle and one guy gets the patent office five minutes before the other guy, the first guy gets the patents of the bicycle The second guy gets nothing even though they both worked on it for five years and that, in a sense, if you believe in that ideas give you property rights, well then the second guy has been stolen from. The burden of proof would be on the second guy to prove that he invented it independently.

33:51He did favor copyrights, but see the problem with copyrights, and the problem with the reductio against this, is if you really believe that you own things because you created ideas about them, then why do patents and copyrights only last 15 years? I own this wristwatch and I'm going to own it forever, and if it lasts longer I can give it to my son, my grandchildren, whatever, great grandchildren can get it. But if I create some idea, why only 17 years or 92 years or the life of this or that, it's silly. Secondly, to use Hans Hoppe's insights, you commit a performative contradiction when you attack, when you defend the idea of patents or copyrights or intellectual property. Why is that?

34:37Because notice, let's say here I now do it. I say, patents and copyrights are great. People do own their ideas. Notice I just used a whole bunch of words in the English language. Each one of those words was created by somebody. Say, the word, the, was created by Mr. The. And I should have to pay him before I used the word, the. And I don't know where he is, so I can't say the word, the. But so for every other word in the English or any other language, namely, you can't say this. because the mere saying of it denies rights and intellectual property. So the thing is shown to be fallacious on the grounds of performative contradiction.

35:22Okay, some more questions. Transactions cost should affect both the effectiveness of a cartel or monopolist and possible entrance into the market. Does Austrian economics find transactions cost useful in the analysis of the market? And if so, in what sense does Austrian economics include or embrace this concept? I agree with Peter totally, except with the way he spells Cosian. I think it should be C-O-A-S-E-A-N, and he spells it I-A-N. But apart from that, I think that transactions costs have a good wall to play in the size of the firm. The waiter, when the waiter goes to the cook and says, you know, get me a roast beef, The cook doesn't say, well, that'll be $20 or something.

36:09They just order each other around under the orders of the manager of the restaurant. That's fine. But there's another use of Cosianism transactions cost, which is highly problematic. And a lot of Austrians have criticized this. So let me give you the two-minute version of the evil coast. And the evil coast, I think, pervades everything is ever written except for the theory of the firm. For example, the lighthouse business, he's now seen as a good guy in the lighthouse, but my buddy Bill Barnett and I have two articles out attacking him viciously on the lighthouse. I'll get to the lighthouse in one of my later subjects, but, you know, sort of mentioning the word COAS is like a red flag in front of a bull I sort of want to attack.

36:54Okay, so here's the two-minute version of COAS. For COAS, there are two states of the world. There's the zero transactions cost state of the world, and then there's the high transactions cost state of the world. Now, in the zero transactions cost state of the world, if I'm having a dispute with someone, say Bob, Bob Murphy and I are having a dispute as to who is the proper owner of this wristwatch. Well, what Coase says is that in the zero transactions state of the world, it doesn't matter who the court awards the wristwatch to, to me or to Bob. Suppose I really value it a lot more. Well, if the court values it to me, I'll keep it. On the other hand, if the court awards the wristwatch to Bob, I'll bribe him out of it.

37:41Namely, he doesn't really value it as much as I do, and there are no transactions, costs of making bargains. So I'll say, hey, Bob, the court gave you the watch, but I'll give you 20 bucks for it. What are you saying? He says, sure, I don't really want it that much, and I really do want it, so I get it. I had a big debate with Demsets over that. I think that's wrong for certain technical reasons. Mainly, it depends upon whether I have enough money to bribe Bob out of it, but that's a minor point. The major point is, now we have the high transactions cost of the world. Think pollution. There are, I don't know, 50 million cars and 300 million recipients of the pollution. So who owns the right to pollute, the cars or the recipients of the pollution?

38:27If you award it to one of the other guys, you can't make a bargain with so many millions of people. So now it really is important who the court awards the wristwatch to. So if they award it to me, I'll keep it. And if they award it to him, he'll keep it because we can't bribe each other out of it so that the better user of it gets it. So what is Coase's advice to the court as to who should get it? Coase's advice to the court is, give it to whoever would have got it in the zero-transactions cost model. Notice that for Coase, property rights are future-oriented, right? Whereas the libertarian view on property rights is past-oriented, namely, who homesteaded, who bought it, who made it, who got it as a gift, who won it in a bet, things like that.

39:20There are several reductios that you could use on this.

39:28Suppose Bob values this watch more than I in the court. First of all, how is the bloody court going to know any of this? That's one very important problem. The second one is, suppose Bob is a utility monster. He loves everything. You know, there was this cartoon, not a cartoon, an ad about Billy, let's let Billy eat it. He hates everything, so if he likes this serial, it's good. Life serial? Mikey. Mikey, Mikey. Well, Bobby loves everything. So he'll get to own everything in the whole world. Because he loves things more than the rest of us do. Or take the case of rape. If somebody rapes somebody, the old-fashioned court would say, well, this is an invasion of property rights of the female body.

40:17Under the Coasean analysis, not so fast. We have to go into the costs and the benefits. And if the rape victim had low self-esteem or was a prostitute or whatever, and the raper was a guy at sea for three months and really needed it or something, and his value of the rape was more than her costs, and how we're going to determine that, who knows? Well, he could go scot-free. One of my articles on this was defending, what's his name, O.J. Simpson, on the case So the murder of his wife, and I was saying, well, you know, he was a case for O.J., the Kosian case for O.J. Sure he killed her, but he should go free, because he valued her death more than she valued her life. And who's going to say no? I mean, the whole thing is preposterous. And yet, there are now, there are now courts, there are now, most law schools have a law on economics.

41:09I mean, Posner and Kosin, Demsets and those guys are taking over the law schools, a lot like wildfire. And this is the sort of stuff that they're peddling. Okay, the next question. Rothbard argues that if consumers were really angry... How much time? When do I go into it? Oh, so I got a few more minutes. Rothbard argues that if consumers were really angry at this monopolistic action, they could easily make their demand curves elastic. Remember I illustrated that? What about OPEC in the 70s? Well, I think this applies to OPEC or anything, but OPEC is a little different than the ordinary cartel because it's a cartel run by governments, so it's not a full analogy.

41:55You see, most neoclassical economists say that cartels are subject to break up from internal and external contradictions, namely if the cartel raises the price higher. Each member of the cartel has an incentive to cheat a little bit, to produce a little bit more than they're called for, and that'll break up the cartel from internal cheating. And from external entry, if the cartel succeeds in raising prices, there'll be more profits and other people will enter in order to get those profits, so cartels are unstable. Murray makes those points too, but he says, look, a cartel is just like a cooperative Adventure, and the ultimate end of a cartel is a firm. You know, so what's wrong with a cartel?

42:44A very different way of looking at cartels than the mainstream do it. Okay, the next one is, how is there not a monopoly price as I learned to solve for in micro? I'm sorry, there's no What is it, Virginia? I hate to burst your bubble, but just because you solve for it in micro class doesn't mean that there's a legitimate distinction between monopoly and competition, and I gave my illustrations about that. Here's another one on patents. This is the one I was looking for before.

43:29If there were no patents, what would be the incentive for drug companies to invest billions in new drugs if another company could come along and copy it? Now, that's a very good utilitarian or practical objection to the Kinsellian view on patents and copyrights. Kinsella makes two points. First of all, he says, look, what we want to do is first find out what the law should be. And if the law is predicated on libertarian law of non-aggression, well then patent violations do not violate that and should be allowed, namely intellectual property is not a legitimate subject. Then he makes another point, he says, as a matter of practicality, it's not clear that patents will help.

44:17See, right now, if you want to invent something, what you have to do is go through a minefield of other patents, right? You have to hire a bunch of lawyers and a bunch of chemists or physicists or engineers to make sure that, in other words, if the best way to invent your new thing is to just go directly, you can't go directly because there are patents like landmines all over the place. You have to go here, you have to zig there, you have to go there. So by the end of the day, it's a little hard to, it's an empirical question as to whether we'd have more or less inventions with patents or intellectual property or not. And Kinsella says, well, you know, let's get the law compatible with the basics of justice or libertarian law. Let's not worry about that. Another point that he makes is that there's a whole bunch of things that everyone thought wouldn't be but were.

45:08For example, when Betamax and VCRs first came out, everyone said there'd be no more movies. Because you go to a movie, it's ten bucks each, you go rent a VCR for three bucks and you get 25 of your best friends in there. It's a lot cheaper. The idea, what they found was timing is very important. The VCR doesn't come out until six months later, and if you want to see the movie now, you go buy it. So movies weren't ruined. When paperback books came out, you young folk don't remember, in your lives there are always paperbacks, But us old fogies, we remember the days before paper, I'm not sure about that, but I think so. But when, maybe not, I'm no historian, but when paperback books first came out, everyone said nobody produced hardcover books anymore because you'd wait for the paperback.

46:01But that wasn't so. Another example is Paris gowns, and I'm not a crossdresser, so I'm not as into this as I could be. Some of you experts in the audience will correct me if I'm wrong on this. I think David Weir's dress... No, I'm just kidding. My understanding of the Paris dresses is they sell for 10,000 bucks and then six months later you can buy them in Mises for 50 bucks or something like that. And they're exact copies, but the point is that if you can make the thing sooner, you can get a lot of money right away. So even if you invent something for a drug or a movie or something like that, You can make hay while the sun shines and there still will be a lot of productivity.

46:48Another point, if one of you were to plagiarize one of my books and start selling it, what you would do is shift out the demand curve to the right for my lecturing services and I'll get a lot more money. So, and usually you don't get that much money from book sales, but you get more from, what do you call it, the lecture gigs. Same for music. If you start pirating some rock and roll group and giving it to all your friends, then more people want to hear them at a live concert. So it's unclear as to which way the empirics go. It's an empirical question. It's thymological, it's not praxeological. Okay, I had a few other points that I wanted to make.

47:33So let me see if I can dig them out, here's one, this is on page 700, The same situation applies for brand names, even those, even in those situations where a minority of the consumers do regard several brands as actually the same good. As long as the bulk of consumers regard them as different goods, then they are different goods. I'm going to cross out that business about the prices differ, because that I think is true. But I don't see why the bulk of consumers have to regard them as different goods.

48:19It seems to me that it's a matter of individualism, and if one person regards it as different, then it's different for him. So, I think that there's a little weakness here on the question of subjectivity. Although, I agree that if only a few people diverge, then this will have much less effect on prices. Here's another one on 705. To obtain a monopoly price, he sells only part of the supply and withholds selling the other part because selling a lower quantity raises the total revenue. In other words, price should be total revenue there. Again, I think these are misprints or, I'm sure everyone knows that, but in the interest of correcting this for the next edition, I thought I'd mention that.

49:06And also, I suppose it's just part of my nature as an attack dog to, you know, when I see some problem to mention it.