Comments Elsewhere

Echidne, I’m familiar with the theory of perfect competition. When I say “free markets,” I don’t mean markets in a state of perfect competition. A free market is a condition that can exist in reality; a perfectly competitive market is an idealized model that cannot. If you’re familiar with Austrian theories of entrepreneurship — a la Israel Kirzner — then that may help explain why I don’t hang that much on theories of perfect competition. Economically, I’m far more interested in the dynamic processes by which real-life markets move towards equilibrium than I am interested in behavior of fictional markets that have reached that idealized state.

So I don’t think the question “Would a free market in X lead to better results than government intervention?” should be answered by appeal to whether or not the market in X will be perfectly competitive. No markets ever are. The question should be whether real people’s efforts to muddle through, facing an uncertain future, are going to be most productive when their arrangements about X are voluntary, or when they are constrained by government coercion.

In real-world markets, some externalities need to be internalized and others do not. When they do, there are lots of ways to do this that are consistent with a free market. One way is to change your business model; radio broadcasters provide a non-rivalrous, non-excludable service to their listeners, gratis, but they make money by using that service to provide a rivalrous and exludable service to advertisers. Private lighthouse operators in 19th century England made their money by charging the nearby port merchants rather than the passing ships. When the externalities are significant and negative, one way to address it is to recognize it as a property rights issue; which is why many radical free marketeers (not Chicago privateers) favor restoring a robust version of nuisance tort law in order to address issues like air pollution.

As for barriers to entry, they are certainly a real issue, but natural barriers to entry are far less common than is often suggested. As a rule, government regimentation of markets creates far higher barriers to entry than would exist under a free market, because compliance with the bureaucracy takes a lot of time, money, and lawyers, and because incumbents can often capture agencies and effectively use them to stifle competition.

The Leftist historian Gabriel Kolko has a very good book, called The Triumph of Conservatism, which discusses the ways in which the Progressive Era regulatory state created and sustained robber baron capitalism, more or less at the behest of Morgan, Rockefeller, and the rest, which reversed the previous decades’ progress towards smaller, decentralized outfits. Without government intervention, free markets very often exert a centrifugal force; they usually start concentrating wealth only once the kleptocrats step in and force competitors out of the market.

Anyway, it does seem to me that all this is well within the realm of economic theorizing, so it seems to me that the concept of a “free market” has got a meaningful role in economic theory. Even if the meaning of the term is often perverted or concealed by hypocritical plutocrats who claim to be acting in its name.

swampcracker, I’m glad that your volunteer emergency services provided so well for your town’s needs. I am all for that kind of face-to-face mutual aid. But I don’t see what it has to do with Firebreak or with my comments.

Firebreak is not a public service. It is a private service operated by insurance companies, mostly because those companies can protect expensive houses for less than it would cost to rebuild them.

They are providing a benefit over and above what is provided by the government and the volunteer services. They are not stopping the government from providing similar services to everybody. They are not stopping you or your fellow citizens from volunteering your own money or labor to provide similar services to everybody. If you think that the level of fire protection available through government and volunteer services is inadequate, then that’s a damn shame, and you ought to try to do something about it. But it does not mean that there is anything wrong with Firebreak for continuing to provide the higher level of service to those who pay them to do so.

If your rich neighbor decides to hire some bodyguards, do you expect them to protect you, too, for free?