<p>Monopoly and competition are one of the central topics in microeconomics, so there many theories on the source of monopoly, and they are not universally applicable.  Government intervention is certainly one possible source of monopoly, but there are many others.</p>

<p>I don't think I could give a general answer that does the question justice, so I will just give links to some of the topics are related:</p>

<ul>
<li><a href="https://en.wikipedia.org/wiki/Cournot_competition" rel="nofollow noreferrer">Cournot competition</a></li>
<li><a href="https://en.wikipedia.org/wiki/Economies_of_scale" rel="nofollow noreferrer">Economies of scale</a></li>
<li><a href="https://en.wikipedia.org/wiki/Network_effect" rel="nofollow noreferrer">Network effect</a></li>
<li><a href="https://en.wikipedia.org/wiki/Diamond_coconut_model" rel="nofollow noreferrer">Diamond search paradox</a></li>
<li><a href="https://en.wikipedia.org/wiki/Monopolistic_competition" rel="nofollow noreferrer">Monopolistic competition</a></li>
<li><a href="https://en.wikipedia.org/wiki/Contestable_market" rel="nofollow noreferrer">Market contestability</a></li>
</ul>

<p>The general area is known as industrial organization.  The classic text is Jean Tirole's "The Theory of Industrial Organization", though I think this only covers a small fraction of the topic.</p>

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2020-06-18T07:41:09.883Z
arsmath, could you specify the places where this is discussed? I don't see this.
Sergei Akbarov
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2020-06-18T11:21:08.837Z
I recommended the standard textbook.  Intro or intermediate micro textbooks should have something about it.  Monopolistic competition and search costs both come up in macroeconomics (they explain why we can have persistent unemployment), so you can find some stuff in macro as well.
arsmath
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2020-06-18T11:25:54.943Z
Actually, I would be grateful for a text where this is discussed directly.
Sergei Akbarov
CC BY-SA 4.0
2018-09-30T08:51:54.503Z
2018-09-30T08:51:54.503Z
arsmath
<p>I'm the user 'softlibertarian', that answer was from an anonymous account I can't seem to recover. </p>

<p>In any case, the liberal economic theory (liberal in both Misesean(Austrian) and Chicago(Neoclassical) senses) is quite clear about monopolies. Here's the short, succinct (and non-technical) version:</p>

<ul>
<li>Every form of action is a monopoly. I, as the person softlibertarian, possess monopoly over labour that is exclusively mine i.e. every monopoly has a <em>scope</em>. Tom Cruise, for instance, possesses monopoly over action movies named Mission Impossible for the action of lead actor.</li>
<li>A monopoly that is both wide in scope (the number of purposes the action serves) and narrow in "awareness" (i.e. is mysterious enough to remain proprietary without alternatives) is especially difficult to create. To sustain such a monopoly, a producer has to create something that is good enough to be loved by everyone and secretive enough to prevent alternatives from springing up.</li>
<li>The empirical evidence (historical events, if you're an Austrian) in the aforementioned book, 'Enterprise Monopoly in the US', demonstrate that monopolistic "predatory" powers of any producer are sustained and nurtured in the presence of government regulation and licensing (preventing competition from rising). Some Chicagoans in rare cases, however, seem okay with a government "anti-trust" legislature.</li>
</ul>

<p>I'd still recommend you visit these links:</p>

<p><a href="https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton" rel="nofollow noreferrer">https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton</a></p>

<p><a href="https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton" rel="nofollow noreferrer">https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton</a></p>

<blockquote>
  <p>softlibertarian I was asking this having in mind applications to the economic life in Russia. What is the libertarian explanation of the events here? What "liberal reformators" of 1990-ies were doing here,</p>
</blockquote>

<p>To answer your comment, @Sergei Akbarov, (forgive my ignorance of the happenings in early 90s Russia, I only barely know what happened) the libertarian explanation is that markets were crushed, central planning was adopted, which suffered from Hayek's "Knowledge problem" (markets take into account the localized knowledge and time when making decisions, a central planner, however benevolent and superior, does not have access to these valuable input, eventually leading to unwanted surpluses and deficits) ultimately leading to the collapse. That was the case in pre-Deng China, and to a milder, but still severe, pre-liberalization India (British inspired Indian Fabian Socialism is a story for another day).</p>

<blockquote>
  <p>was that the right strategy from the point of view of libertarians?</p>
</blockquote>

<p>Of course not, libertarians emphasize a much greater (if not complete) reliance on market mechanisms to coordinate individuals' productive and consumptive capacities. Again it depends on which libertarian you ask. If you ask me, I'd recommend the "mainstream" Scott Sumner (Market Monetarist/Chicago) libertarianism which basically says enable market mechanisms for virtually everything you can think of, establish carbon(pigouvian) tax for negative externalities where private arbitration turns unjust, provide the oft-quoted Hayekian "basic needs" in the form of NIT (implemented as EITC in the United States).</p>

<p>If I'm allowed to get tangential and in case you're worried about monopolies, I'd refer you to the popular libertarian philospher Robert Nozick's description of a free market economy. He describes, in his book Anarchy, State and Utopia, the mechanism by which wealth forms, Wealth is formed only by peaceful individuals interacting with their belongs in a productive manner (Wilt Chamberlain argument). You are no worse off than what you were when others gained wealth, nullifying your (hypothetical) claim to injustice.</p>

<p>@Kitsune Cavalry, I hope this answer is satisfactory.</p>

<p>Disclaimer: I have not had any sort of formal economic training. Economics is simply my side interest.</p>

CC BY-SA 4.0
2018-11-18T06:31:42.130Z
user20158, thank you, I'll read what you recommend. However, I suspect that there must be a more or less simple explanation of what I am worrying about. In what I already read about libertarianism (and liberalism) I don'see any mechanisms that prevent people in such a society to abuse their power in forming monopolies. People's opportunities are different, they come from the differences in many things, in particular, from the differences in their professions. This system seems to compel people to become policemen and politicians, not physicians and scientists. Is that true?
Sergei Akbarov
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2018-11-18T06:43:16.493Z
Two things. Realistically speaking, how often do you see a political system built on non-capitalist (capitalism to me has a very specific meaning, free markets and trading rights to your belongings) mechanism being free of corruption and power abuses? If anything, a non market based system gravitates towards abuses of power. If the Nozick's economic description wasn't placatory :), I'd remind that any monopolistic corporation is very limited in ways it can abuse you. Do you really think Walmart selling cheap stuff is the same as the government stealing 35% of your hard earned income? Continued
user20158
CC BY-SA 4.0
2018-11-18T06:49:08.690Z
Other than a few *contested* macroeconomic theories on role of government in boosting aggregate demand, libertarianism remains the mainstream economic theory. While almost all economies rely on state mechanisms to regulate certain aspects of economic exchanges, no major, modern economy is possible without free market mechanisms. That should be a pretty major clue that markets are the key to survival of the human race. Why do you think poverty exists in third world countries? Because of markets? It is precisely the opposite, markets are crushed in every poor country by political opportunists.
user20158
CC BY-SA 4.0
2018-11-18T06:58:40.317Z
And your question about the system compelling people to become policemen and politicians. Not only is it not possible, because libertarianism emphasizes non coercion, but also because markets unleash productive capabilities never seen before. In fact a particular strand of libertarianism, objectivism, even celebrates people being productive, happy and satisfied with themselves.
user20158
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2018-11-18T07:12:35.013Z
user20158 in my opinion your reasoning is too theoretical. About poverty in the third world: I have reason to think that it comes not from some evil people who deliberately bring down the markets, but from those who, using their professional position, build economic and political monopolies, which are beneficial to bring markets into this state. And an unpleasant detail in this picture is that the construction of these monopolies is impossible without cooperation with the western countries with their liberal political systems.
Sergei Akbarov
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2018-11-18T07:30:20.443Z
And another unpleasant detail is that in Russia this happened under purely liberal slogans. Which confused people and turned them away from liberalism. I have a strong suspicion that the mechanisms in Africa, Latin America, etc. are the same.
Sergei Akbarov
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2018-11-18T15:15:38.997Z
I lived all my life in a third world economy. I have seen  businesses struggle to satisfy their customers because trade with other nations is prohibited, the amount to produce and distribute are regulated (leading to a lot of food and supply waste). I don't think at all what I said is theoretical. Clearly the absence of powerful, efficient first world businesses in the third world is a sign that they are prevented from operating there.
user20158
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2018-11-18T15:32:02.730Z
user20158, what is your country?
Sergei Akbarov
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2018-11-18T19:31:57.620Z
@SergeiAkbarov I'd like to maintain my anonymity, but it suffices to say I'm from a Socialist country, fortunately from one of the milder ones, but still foolish to have caused hunger and poverty everywhere. Classic Keynesian fiscal stimulus from the government is derided as "too capitalist" by the populists in this country. Forget others, even Paul Krugman would mock my country for being so statist.
user20158
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2018-11-18T19:40:18.377Z
user20158, will it be dangerous even to name the country?
Sergei Akbarov
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2018-11-18T19:42:18.000Z
Anyway, user20158, the restrictions in trading are only a part of the problem, another part is what I told: the monopolies that appear in collaboration with the well-developed countries.
Sergei Akbarov
CC BY-SA 4.0
2018-11-18T21:39:06.020Z
I do not consider monopolies engaging in rent seeking behavior to be a problem anymore than welfare queens. Behaviors exhibited by private entities (either welfare seeking individuals or lobbyist corporations) are the result of incentive structures made available to them. If you were arguing against one, you have to argue against the other too.
user20158
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2018-11-19T00:43:56.957Z
user20158 this sounds indeed intriguing. This must be a very unusual socialist country of third world, with hunger and poverty, if welfare seekers pose a more important problem there than the monopolies in power. You should name it, othewise it will be difficult for me to believe in its existence.
Sergei Akbarov
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2018-11-19T03:22:28.287Z
To be truthful, I'm not complaining against the welfare system we have in place in our country. I'm complaining against the rampant government intervention into the market place leaving the private sector almost dead. We liberalized couple of years ago which gave us breathing space. And I wish to make a clarification, you seem to be under the assumption that countries with a high standard of living are Socialist. It's not true, *all* successful countries are market based economies with some welfare functions. Also, *no* market economy has left its citizens in rampant poverty.
user20158
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2018-11-19T03:26:20.807Z
The same cannot be said of even one Socialist country. We have derailed much from our question but you can check out the indices of economic freedom and see how free markets lead to prosperity.
user20158
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2018-11-19T05:15:08.803Z
user20158  in my opinion. this statement

> **I'm from a Socialist country, fortunately from one of the milder ones, but still foolish to have caused hunger and poverty everywhere**

-- contradicts to this one

>  **I do not consider monopolies engaging in rent seeking behavior to be a problem anymore than welfare queens.**

As long as you do not call the name of the country, I can't understand (and believe) you.
Sergei Akbarov
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2018-11-19T09:07:19.270Z
user20158, I only now understood that you probably mean either Cuba or Venezuela. If so, this explains your views.
Sergei Akbarov
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2018-11-20T06:04:01.703Z
Alright. I'm from South Asia, specifically, India.  Check out the Wikipedia articles on Fabian Socialism in India. Liberalization of India in 1991.
user20158
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2019-07-19T16:31:53.803Z
user20158 excuse me for the silence. What you write sounds very strange to me. Are there welfare queens in India?
Sergei Akbarov
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2018-11-18T05:36:46.800Z
2018-11-18T05:36:46.800Z
user20158
<p>The best study I know of on the formation and sustenance of monopolies is 'Enterprise monopoly in the US' by Austrian/Chicago Economist G Warren Nutter.</p>

<p>The best summary of this book I have found are at these Quora answers:</p>

<p><a href="https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton" rel="nofollow noreferrer">https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton</a></p>

<p><a href="https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton" rel="nofollow noreferrer">https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton</a></p>

<p>(A one line summary is that monopolies tend not to be formed in an unregulated market)</p>

CC BY-SA 4.0
2018-11-13T04:35:12.250Z
softlibertarian I was asking this having in mind applications to the economic life in Russia. What is the libertarian explanation of the events here? What "liberal reformators" of 1990-ies were doing here, was that the right strategy from the point of view of libertarians?
Sergei Akbarov
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2018-11-17T21:03:53.207Z
Hi there, it is better that people write up their own answers in their own words, rather than just link to someone else's answer, thanks
Kitsune Cavalry
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2018-11-13T02:43:45.597Z
2018-11-13T02:43:45.597Z
softlibertarian
<p>Sergei, the problem with Austrian economics in and of itself, just like with Keynesian economics, is that these are economic theories created a long time ago. They are currently front and center, one being applied by those in power, the other being touted by those who may or may not want to be the ones in power instead. Economic theories that do not apply to our modern world become ideology, no different than those believed by the Socialist Workers Party, the United States Communist Party if they still exist and the Libertarian Party. Having been around members of all these organizations, I found them all to be out of touch although I would say that ideally, Libertarianism makes more sense to me these days, but grabbing on to an ideology is never a good way to develop a full and healthy understanding of economics and our world today.</p>

<p>If there is any economist that I would tout as part of some ideological group and still be accurate with our modern times it would be the Peruvian economist Hernando De Soto, the author of <em>The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else</em>.</p>

<p>The Von Mises/Austrian/Libertarian camp has not traditionally had a good answer for why capitalism failed everywhere else before De Soto came on the scene, now the Mises Institute pushes his work, but before the publishing of this book?  Before 2003? Mises was definitely around before then and yet in my readings of his work, I don't see any explanation of why capitalism has failed everywhere else, but I did see a lot of why socialism had failed.</p>

<p>So what did De Soto teach us? He taught us that in highly dysfunctional economies, entrenched elites tolerate the informal structures, meaning the black market, working under the table, doing business in a currency that is not legal to use and so on, because these are less impactful on their wealth than formalized welfare.</p>

<p>I love how racist/classist people will mention that Latin-Americans are accustomed to welfare and thats why they swarm to the United States. Aside from this being a generalization, the fact is Latin-American governments, most of them anyway, do not have the huge welfare system we have here in the United States, so the comments are made by ignorant people who do not study the government and economies of other nations. In fact, in places like Colombia and Venezuela (pre-Chavez), government giving you a check for doing absolutely nothing is unheard of and the elites and government officials of those nations would scoff and laugh at the idea and possibly even follow it up with "let them eat cake".</p>

<p>So, as a result, an informal economy is tolerated by elites because they are sure as heck are not going to spend their resources to establish a welfare system such as we have here in the United States and they do not want an open rebellion of the disenfranchised.</p>

<p>Less dysfunctional societies such as ours here in the United States keep a tight rein on informal alternatives, forcing everyone but the most marginalized into the formal structure of employment or as I mentioned before, welfare.</p>

<p>I am giving you a long-winded answer here because I am having to cite my sources in anticipation of those that disagree demanding I provide some citations.</p>

<p>So lets go from De Soto, the economist I would tout more than Von Mises if I were still a libertarian and lets look at Christopher Wickhams' book, <em>The Inheritance of Rome: Illuminating the Dark Ages 400-1000 AD</em>, it is not a work of economics but I often find that historians get it and prefer their analysis over an idealized economist from a century ago.</p>

<p>Wickham explains that after the demise of the Western Roman Empire, there was still loyalty to a central authority, after all, the people were afforded rights and limited self-rule within village councils and allowed ownership of land, but these rights were extinguished by feudalism, which bound the peasantry to the nobilities' persons and estates.</p>

<p>I am suggesting here that Von Mises is out of touch because in the current era, the old formal structures of feudalism mentioned by Wickham have been replaced by new structures of control, divestiture and disenfranchisement that others refer to as <em>neofeudalism</em>.</p>

<p>In other words, in this new neofeudalist economy that we exist in here in the United States, we technically have a political voice, but in reality the levers of governance and financial power are in the hands of global corporations and the top 1% of households and to a lesser degree in the top 10% managerial class that serves the interests of what others have called the <em>New Nobility</em> or <em>New Aristocracy</em>: technocrats, media editors/producers, professionals, lobbyists, etcetera.</p>

<p>Von Mises does not have much to say on the above does he? Of course not, he was living in a different time period, but ideology infused organizations insist on grabbing on to works of smart people with theories that no longer apply to our modern world.</p>

<p>The ideas of Von Mises and the other individual libertarians love, Ayn Rand are ideas that can only work in a system where there is broad-based ownership of productive capital, that is, capital that generates permanent income streams. This is the necessary foundation for political power to also be similarly broadly distributed.</p>

<p>Not only De Soto explains how capitalism has indeed not worked in places where asymmetry of ownership and power were present, but so does Daron Acemoglu, Killian professor of economics at MIT and University of Chicago professor James A. Robinson in their book <em>Why Nations Fail</em>. Again, more current, more relevant economists who explain that if this asymmetry of ownership and power were present since the birth of a nation, these societies are incapable of changing the power structure. Paid lackeys glorify the facades of democracy and free markets, but everyone knows these are facades.</p>

<p>How is Von Mises' theory working for the disenfranchised of Russia, not very well is it?</p>

<p>I do not know all the details of whats going on in Russia so I will stay focused on what I do know which is the United States. We are now in an advanced form of neofeudalism which is primarily financial which have generated enormous premiums for mobile capital, monopolies and specialized expertise in software and finance, while devaluing labor's value in the fields that can be profitably offshored or mechanized with software and robotics.</p>

<p>This is our modern situation, Von Mises will not help you understand this, he is long gone my friend. You need to do your own research and analysis of your situation and how to remedy it.</p>

<p>For example, I read this study from Princeton University:
<a href="https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf" rel="nofollow noreferrer">https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf</a></p>

<p>which found that voters have very little power here in the United States, effectively making the United States an oligarchy.</p>

<p>We do not live in a capitalist economy here in the United States or anywhere else for that matter. We have a dominance of state-controlled markets which is the foundation of a neo-feudal oligarchy, I suspect Russia to be no different than this. You see when you control the state, you can protect state-enforced cartels and monopolies such as institutions of higher learning and the health industry.</p>

<p>Control the market and you can buy political power with the profits. I will not be getting into what a neofeudal state-market structure looks like here.</p>

<p>Austrian economics does not speak on the divergence of formal rights and the actual structure of wealth and power as the core characterist of neofeudalism and oligarchy, so read on, the answers you seek are elsewhere. Although I focused on the United States because its what I know, neo-liberal globalization has us tightly coupled so I do not think it is much different in Russia.</p>

<p>Let me guess, much like United States citizens, you retain the right to cast a vote, but your vote has little actual influence over the government's decisions. Every citizen retains the legal right to acquire productive capital, but only the top 5% own meaningful amounts of productive capital and the majority of this capital is owned by the New Nobility, the top 0.1% of Russian households?</p>

<p>Most of my career has been in the non-profit sector because I always wanted to work in progressive organizations that were about solving pressing social problems, I became disillusioned, libertarians convinced me its because non-profits and governments are not the answer, the private sector and capitalism is the answer. Went through that whole process which I will not get into here, but in summary, today I understand that the problem was not that its a non-profit or a government agency and they don't work because they waste money and all that other ideology spouting.</p>

<p>The problem is in the current power structure, earning a university degree expecting to find secure employment, representatives expecting to make real change, progressive non-profits expecting to solve pressing social problems and so on do not work.</p>

<p>None of the above have the power to correct the structural sources of decay.</p>

<p>Don't believe me, just look at the reality of the situation. College graduates like myself these days find that their diplomas have little market value except for those of select universities. Newly elected representatives find that any independence is punished by the party machinery. Idealists find they cannot change systemic roots of the problems. Everywhere, people are co-opted or corrupted by perverse incentives, sclerotic bureaucracies, self-serving insiders, crushing debt loads and all the other realities of a highly asymmetric neofeudal oligarchy.</p>

<p>And those that will be offended by my answer are only serving to prove that indeed there is a tremendous divergence between the experiential reality of United States neofeudal power structure and the idealized expectations of its people, which will be a wellspring of non-linear social unrest in the end by the way.</p>

<p>So if you must have a "libertarian" point of view I would look to the Peruvian economist Hernando De Soto, his work seems to be acceptable in the eyes of the Mises Institute, but I would also look at Daron Acemoglu and James A. Robinson.</p>

CC BY-SA 4.0
2019-07-19T12:44:47.167Z
Daniel, thank you very much, that is interesting! I read the book by  Acemoglu and Robinson, it is even translated now into Russian, and it is indeed a good explanation of what happens around (I would say the best one that I heard). I did not hear about De Soto, so thank you, I'll try to find his works.
Sergei Akbarov
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2019-07-19T12:48:47.337Z
You also use the word "feudalism", and I find it very useful for describing the situation. I know a Russian sociologist Vladimir Shlapentoh, who wrote two books about this, one about Russia and one about the US. Do you know other useful sources on this topic?
Sergei Akbarov
CC BY-SA 4.0
2019-07-19T13:57:51.193Z
@SergeiAkbarov, I am also learning from you. I did not know about Vladimir Shlapentoh, I hope to find his works in English. As far as other useful sources, you may find value in the work of evolutionary biologist Peter Turchin, he has written many books on the rise and fall of nation-states, empires and the evolution of societies. I think one book in particular, War and Peace and War: The Rise and Fall of Empires covers some history related to Russia and surrounding region. All the best.
Daniel
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2019-07-19T11:33:47.630Z
2019-07-19T11:33:47.630Z
Daniel
<p><a href="https://en.wikipedia.org/wiki/Ludwig_von_Mises" rel="nofollow noreferrer">Ludwig von Mises</a> in his book <a href="https://mises.org/library/liberalism-classical-tradition/html/p/38" rel="nofollow noreferrer">"Liberalism: In the Classical Tradition"</a> writes that in liberal economic the monopolies are rare and have a tendency to disappear. </p>

<p>For an onlooker like me, however, his arguments sound not convincing, they give an impression of topics specially selected for polemics. For example, he doesn't explain the causes of the Great Depression (which is a standard argument against liberalism for his opponents). </p>

<p>Moreover, I would say, his style is strangely focused on examples, he seems to carefully avoid mathematical language, where chosen notations and premises give a possibility to deduce general statements from other general statements. As a result, his examples look like special cases which do not cover the whole picture. The examples that he gives look good, but a feeling appears that there are other, uncomfortable examples, which go unnoticed. </p>

<p>On the other hand, what happens in the real economy does not confirm his scheme well, for example (this is commonplace in the political debates in modern Russia) the "liberal reforms" of 1990-2000-ies led not to capitalist relations but directly to a feudal society with highly monopolized economical and political life.</p>

<p>I want to ask you if there exist theories/books/articles where the accusation against Liberalism -- </p>

<blockquote>
  <p>Liberalism leads to monopolies</p>
</blockquote>

<p>-- is discussed in detail with convincing references, examples, and conclusions? </p>

<p><strong>EDIT 29.09.2018.</strong> Gentlemen (and ladies), still I would like someone to enlighten me. Where do monopolies come from? Are they a result of state intervention, or do they arise by themselves, without a public policy? Where is this all described (i.e. which reading could you recommend)? If the school of Mises died, what does the rest of the economic science say about it?</p>

<p><strong>EDIT 08.07.2019.</strong> I'd like to add this question: are there any ways to deal with monopolies except the government intervention?</p>

CC BY-SA 4.0
2018-09-18T12:42:09.257Z
http://www.hbs.edu/faculty/Publication%20Files/07-037.pdf The paper gives a good overview about the relationship between political system and economy in general. It also contains some useful hints which factors are relevant that there evolve monopolies in a market.
giftnuss
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2018-09-18T19:55:17.057Z
This question is a bit too political.
Pedro Cavalcante
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2018-09-19T01:17:09.927Z
@PedroCavalcanteOliveira I would say, it's normal for questions on economics.
Sergei Akbarov
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2018-09-19T01:24:15.017Z
It's normal for questions on economics made by leyman
Pedro Cavalcante
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2018-09-19T01:29:55.190Z
I am a layman. A mathematician. Is this allowed here? :)
Sergei Akbarov
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2018-09-19T06:57:29.197Z
But this sounds strange: "It's normal for questions on economics made by leyman". Mises, Hayek and other economists discuss politics all the way in their texts. Are they laymen as well? :)
Sergei Akbarov
CC BY-SA 4.0
2018-09-19T20:55:44.763Z
Avoiding mathematical language is intentional with Mises - Austrian school of economic thought refuses mathematical methodology and focuses on psychological and sociological aspecs - in ohter words, human behavior, that is not governed by unchanging laws of mathemathics, but by human individuality, by "sum" of individual decisions.
MikiRaven
CC BY-SA 4.0
2018-09-19T20:58:01.570Z
Anyway, as I see it, you are asking many questions in one. You are asking about monopolies, about causes of the Great depression, about Russia, about overuse of casuistic examples vs. general conclusions... Maybe you focus on one of them, and then, after it is answered, ask the others.
MikiRaven
CC BY-SA 4.0
2018-09-20T01:39:13.320Z
@MikiRaven I see only one question in the body of my post (and only one in the title, and this is the same question, but reformulated). It is in the sentence with the question mark. The rest is the explanation of why I am asking this.
Sergei Akbarov
CC BY-SA 4.0
2018-09-20T07:15:12.500Z
@SergeiAkbarov They are even less competent than laymen- they are dead. Which makes them not very active participants in contemporary economic research.
Michael Greinecker
CC BY-SA 4.0
2018-09-20T07:58:40.863Z
@MichaelGreinecker that is why I am asking people here, not Mises and Hayek. Does anybody know an answer? There must be a scientific explanation, isn't it?
Sergei Akbarov
CC BY-SA 4.0
2018-09-20T08:13:56.830Z
@MichaelGreinecker and if your point is that people have no right to ask questions connected to politics (or questions that could be connected to politics somehow), then I would like to ask you (and Pedro Cavalcante Oliveira) where did you take this rule? Can you give a reference or an explanation of what specialists could have in mind when expecting this from non-specialists (or just from those who ask questions)?
Sergei Akbarov
CC BY-SA 4.0
2018-09-20T09:10:26.693Z
@SergeiAkbarov The question is about "liberal theory", and that is not a topic in economics. Monopolies are.
Michael Greinecker
CC BY-SA 4.0
2018-09-21T19:15:46.293Z
I think the question is well within scope of Economics SE. If anything, politics just happens to be the *context* in which economic agents make their budgetary/utility decisions. Despite highlighting the government-caused distortions of markets, a liberal economist's explanation of these dynamics might be more descriptive/argumentative of *policy* rather than *politics*. Based on the notion of "*natural monopoly*", I could advance a *non-accusatory* argument which renders the statement "*liberalism leads to monopolies*" plausible, but I am mindful that the OP asks for references and examples.
Iñaki Viggers
CC BY-SA 4.0
2018-09-22T06:15:32.973Z
@MichaelGreinecker I don't understand. What is called libeal economic theory, do you mean that it doesn't exist now?  https://en.wikipedia.org/wiki/Liberalism#Liberal_economic_theory
Sergei Akbarov
CC BY-SA 4.0
2018-09-22T06:25:34.497Z
I took the term from the title of your question.
Michael Greinecker
CC BY-SA 4.0
2018-09-22T06:39:27.213Z
Hm, you could be more indulgent. If this is important I can correct this.
Sergei Akbarov
CC BY-SA 4.0
2018-09-27T17:59:01.910Z
@MichaelGreinecker will it be correct to think that the liberal economic theory doesn't consider this problem in detail?
Sergei Akbarov
CC BY-SA 4.0
2018-09-27T18:14:37.277Z
There  is no "liberal economic theory" within economic research. Only political pundits and historians care about von Mises.
Michael Greinecker
CC BY-SA 4.0
2018-09-29T08:42:43.133Z
@MichaelGreinecker so this division into supporters and opponents of the state intervention into economics does not exist now?
Sergei Akbarov
CC BY-SA 4.0
2018-09-30T01:00:43.090Z
@SergeiAkbarov Seems there is a true Scotsman fallacy at work here. True economists don't care about Mises. Thence asking about Misean theories is off-topic in the Economics stackexchange. The fact that Misean theory is about economics, oh well, why should we bother about facts?
Luís Henrique
CC BY-SA 4.0
2018-09-30T07:48:56.757Z
@LuísHenrique it's a disease to not pay attention to facts. Anyway, as I already wrote, it's not important for me that the reference should necessarily be to Mises or to his school. Any reference will do, I only ask people to refer to texts readable for mathematicians.
Sergei Akbarov
CC BY-SA 4.0
2018-09-30T08:57:16.680Z
This is not a true Scotsman fallacy here.  Mises is a fringe thinker who has a vocal Internet cheering section, and economists are tired of talking about him, rather than the thousands of more recent papers on competition.  Economists work hard, and their work tends to get ignored in favor of glib generalizations that lend themselves to YouTube videos.  I can see how that would cause some impatience.  None of that is fair to Sergei, who is clearly asking the question in good faith, and happened to have encountered Mises rather than Tirole or Diamond-Mortensen-Pissardes.
arsmath
CC BY-SA 4.0
2018-09-30T09:23:39.957Z
@arsman thank you. Actually, I am indeed a layman, I was asking about Mises because he served as a justification for Russian goverment in their economical reforms. I do not agree with people who say that a correct question should not be connected to politics. You can't live among people and be free from politics. I would prefer to concentrate myself on my field in mathematics, but I can't because the society forces me all the way to be interested in what happens in economics and everything connected to it. And, by the way, I believe it's a duty of specialists to explain the important things.
Sergei Akbarov
CC BY-SA 4.0
2018-09-30T16:00:02.687Z
@arsmath I take as a given that no serious economist today takes Ganilh or Quesnay, or even Adam Smith, as representative of mainstream economics. But would for that reason questions about Ganilh or Quesnay be off topic in this stackexchange?
Luís Henrique
CC BY-SA 4.0
2018-09-30T16:01:34.080Z
And you are mistaken if you think that Mises is irrelevant in real life debate today. There are Mises Institutes that function as think tanks, and are influential in the political debate in countries like Brazil or Argentina.
Luís Henrique
CC BY-SA 4.0
2018-09-30T16:11:22.977Z
But to the issue: what does mainstream academic economics have to say about monopolies? Does competition lead to monopolies, or not? I do not feel qualified to answer about academic economics, but I very much see that in usual conditions, competition leads to the elimination of the least efficient companies, and consequently to a reduction of competitors, and, perhaps more importantly, to an increase of the amount of capital necessary to run a competitive company. There are of course countertendencies, mostly related to innovation - but innovation is not a regular or predictable process.
Luís Henrique
<monopoly><political-economy>
What does liberal economic theory say about monopolies?
Sergei Akbarov
# What does liberal economic theory say about monopolies?

(Asked by: username_0 on 2018-09-18)

[Ludwig von Mises](https://en.wikipedia.org/wiki/Ludwig_von_Mises) in his book ["Liberalism: In the Classical Tradition"](https://mises.org/library/liberalism-classical-tradition/html/p/38) writes that in liberal economic the monopolies are rare and have a tendency to disappear.

For an onlooker like me, however, his arguments sound not convincing, they give an impression of topics specially selected for polemics. For example, he doesn't explain the causes of the Great Depression (which is a standard argument against liberalism for his opponents).

Moreover, I would say, his style is strangely focused on examples, he seems to carefully avoid mathematical language, where chosen notations and premises give a possibility to deduce general statements from other general statements. As a result, his examples look like special cases which do not cover the whole picture. The examples that he gives look good, but a feeling appears that there are other, uncomfortable examples, which go unnoticed.

On the other hand, what happens in the real economy does not confirm his scheme well, for example (this is commonplace in the political debates in modern Russia) the "liberal reforms" of 1990-2000-ies led not to capitalist relations but directly to a feudal society with highly monopolized economical and political life.

I want to ask you if there exist theories/books/articles where the accusation against Liberalism --

> Liberalism leads to monopolies

-- is discussed in detail with convincing references, examples, and conclusions?

**EDIT 29.09.2018.** Gentlemen (and ladies), still I would like someone to enlighten me. Where do monopolies come from? Are they a result of state intervention, or do they arise by themselves, without a public policy? Where is this all described (i.e. which reading could you recommend)? If the school of Mises died, what does the rest of the economic science say about it?

**EDIT 08.07.2019.** I'd like to add this question: are there any ways to deal with monopolies except the government intervention?

**Tags:** monopoly, political-economy

> **Comments:**
> **username_1**: http://www.hbs.edu/faculty/Publication%20Files/07-037.pdf The paper gives a good overview about the relationship between political system and economy in general. It also contains some useful hints which factors are relevant that there evolve monopolies in a market.  
> **username_2**: This question is a bit too political.  
> **username_0**: @PedroCavalcanteOliveira I would say, it's normal for questions on economics.  
> **username_2**: It's normal for questions on economics made by leyman  
> **username_0**: I am a layman. A mathematician. Is this allowed here? :)  
> **username_0**: But this sounds strange: "It's normal for questions on economics made by leyman". Mises, Hayek and other economists discuss politics all the way in their texts. Are they laymen as well? :)  
> **username_3**: Avoiding mathematical language is intentional with Mises - Austrian school of economic thought refuses mathematical methodology and focuses on psychological and sociological aspecs - in ohter words, human behavior, that is not governed by unchanging laws of mathemathics, but by human individuality, by "sum" of individual decisions.  
> **username_3**: Anyway, as I see it, you are asking many questions in one. You are asking about monopolies, about causes of the Great depression, about Russia, about overuse of casuistic examples vs. general conclusions... Maybe you focus on one of them, and then, after it is answered, ask the others.  
> **username_0**: @username_3 I see only one question in the body of my post (and only one in the title, and this is the same question, but reformulated). It is in the sentence with the question mark. The rest is the explanation of why I am asking this.  
> **username_4**: @username_0 They are even less competent than laymen- they are dead. Which makes them not very active participants in contemporary economic research.  
> **username_0**: @username_4 that is why I am asking people here, not Mises and Hayek. Does anybody know an answer? There must be a scientific explanation, isn't it?  
> **username_0**: @username_4 and if your point is that people have no right to ask questions connected to politics (or questions that could be connected to politics somehow), then I would like to ask you (and username_2 username_2 Oliveira) where did you take this rule? Can you give a reference or an explanation of what specialists could have in mind when expecting this from non-specialists (or just from those who ask questions)?  
> **username_4**: @username_0 The question is about "liberal theory", and that is not a topic in economics. Monopolies are.  
> **username_5**: I think the question is well within scope of Economics SE. If anything, politics just happens to be the *context* in which economic agents make their budgetary/utility decisions. Despite highlighting the government-caused distortions of markets, a liberal economist's explanation of these dynamics might be more descriptive/argumentative of *policy* rather than *politics*. Based on the notion of "*natural monopoly*", I could advance a *non-accusatory* argument which renders the statement "*liberalism leads to monopolies*" plausible, but I am mindful that the OP asks for references and examples.  
> **username_0**: @username_4 I don't understand. What is called libeal economic theory, do you mean that it doesn't exist now?  https://en.wikipedia.org/wiki/Liberalism#Liberal_economic_theory  
> **username_4**: I took the term from the title of your question.  
> **username_0**: Hm, you could be more indulgent. If this is important I can correct this.  
> **username_0**: @username_4 will it be correct to think that the liberal economic theory doesn't consider this problem in detail?  
> **username_4**: There  is no "liberal economic theory" within economic research. Only political pundits and historians care about von Mises.  
> **username_0**: @username_4 so this division into supporters and opponents of the state intervention into economics does not exist now?  
> **username_6**: @username_0 Seems there is a true Scotsman fallacy at work here. True economists don't care about Mises. Thence asking about Misean theories is off-topic in the Economics stackexchange. The fact that Misean theory is about economics, oh well, why should we bother about facts?  
> **username_0**: @username_6 it's a disease to not pay attention to facts. Anyway, as I already wrote, it's not important for me that the reference should necessarily be to Mises or to his school. Any reference will do, I only ask people to refer to texts readable for mathematicians.  
> **username_7**: This is not a true Scotsman fallacy here.  Mises is a fringe thinker who has a vocal Internet cheering section, and economists are tired of talking about him, rather than the thousands of more recent papers on competition.  Economists work hard, and their work tends to get ignored in favor of glib generalizations that lend themselves to YouTube videos.  I can see how that would cause some impatience.  None of that is fair to username_0, who is clearly asking the question in good faith, and happened to have encountered Mises rather than Tirole or Diamond-Mortensen-Pissardes.  
> **username_0**: @arsman thank you. Actually, I am indeed a layman, I was asking about Mises because he served as a justification for Russian goverment in their economical reforms. I do not agree with people who say that a correct question should not be connected to politics. You can't live among people and be free from politics. I would prefer to concentrate myself on my field in mathematics, but I can't because the society forces me all the way to be interested in what happens in economics and everything connected to it. And, by the way, I believe it's a duty of specialists to explain the important things.  
> **username_6**: @username_7 I take as a given that no serious economist today takes Ganilh or Quesnay, or even Adam Smith, as representative of mainstream economics. But would for that reason questions about Ganilh or Quesnay be off topic in this stackexchange?  
> **username_6**: And you are mistaken if you think that Mises is irrelevant in real life debate today. There are Mises Institutes that function as think tanks, and are influential in the political debate in countries like Brazil or Argentina.  
> **username_6**: But to the issue: what does mainstream academic economics have to say about monopolies? Does competition lead to monopolies, or not? I do not feel qualified to answer about academic economics, but I very much see that in usual conditions, competition leads to the elimination of the least efficient companies, and consequently to a reduction of competitors, and, perhaps more importantly, to an increase of the amount of capital necessary to run a competitive company. There are of course countertendencies, mostly related to innovation - but innovation is not a regular or predictable process.  

---

## 4 answers

### Answer by username_7 on 2018-09-30. Score: 4

Monopoly and competition are one of the central topics in microeconomics, so there many theories on the source of monopoly, and they are not universally applicable. Government intervention is certainly one possible source of monopoly, but there are many others.

I don't think I could give a general answer that does the question justice, so I will just give links to some of the topics are related:

* [Cournot competition](https://en.wikipedia.org/wiki/Cournot_competition)
* [Economies of scale](https://en.wikipedia.org/wiki/Economies_of_scale)
* [Network effect](https://en.wikipedia.org/wiki/Network_effect)
* [Diamond search paradox](https://en.wikipedia.org/wiki/Diamond_coconut_model)
* [Monopolistic competition](https://en.wikipedia.org/wiki/Monopolistic_competition)
* [Market contestability](https://en.wikipedia.org/wiki/Contestable_market)

The general area is known as industrial organization. The classic text is Jean Tirole's "The Theory of Industrial Organization", though I think this only covers a small fraction of the topic.

> **Comments:**
> **username_0**: username_7, could you specify the places where this is discussed? I don't see this.  
> **username_7**: I recommended the standard textbook.  Intro or intermediate micro textbooks should have something about it.  Monopolistic competition and search costs both come up in macroeconomics (they explain why we can have persistent unemployment), so you can find some stuff in macro as well.  
> **username_0**: Actually, I would be grateful for a text where this is discussed directly.  

---

### Answer by username_8 on 2018-11-18. Score: 2

I'm the user 'username_9', that answer was from an anonymous account I can't seem to recover.

In any case, the liberal economic theory (liberal in both Misesean(Austrian) and Chicago(Neoclassical) senses) is quite clear about monopolies. Here's the short, succinct (and non-technical) version:

* Every form of action is a monopoly. I, as the person username_9, possess monopoly over labour that is exclusively mine i.e. every monopoly has a *scope*. Tom Cruise, for instance, possesses monopoly over action movies named Mission Impossible for the action of lead actor.
* A monopoly that is both wide in scope (the number of purposes the action serves) and narrow in "awareness" (i.e. is mysterious enough to remain proprietary without alternatives) is especially difficult to create. To sustain such a monopoly, a producer has to create something that is good enough to be loved by everyone and secretive enough to prevent alternatives from springing up.
* The empirical evidence (historical events, if you're an Austrian) in the aforementioned book, 'Enterprise Monopoly in the US', demonstrate that monopolistic "predatory" powers of any producer are sustained and nurtured in the presence of government regulation and licensing (preventing competition from rising). Some Chicagoans in rare cases, however, seem okay with a government "anti-trust" legislature.

I'd still recommend you visit these links:

<https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton>

<https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton>

> username_9 I was asking this having in mind applications to the economic life in Russia. What is the libertarian explanation of the events here? What "liberal reformators" of 1990-ies were doing here,

To answer your comment, @username_0, (forgive my ignorance of the happenings in early 90s Russia, I only barely know what happened) the libertarian explanation is that markets were crushed, central planning was adopted, which suffered from Hayek's "Knowledge problem" (markets take into account the localized knowledge and time when making decisions, a central planner, however benevolent and superior, does not have access to these valuable input, eventually leading to unwanted surpluses and deficits) ultimately leading to the collapse. That was the case in pre-Deng China, and to a milder, but still severe, pre-liberalization India (British inspired Indian Fabian Socialism is a story for another day).

> was that the right strategy from the point of view of libertarians?

Of course not, libertarians emphasize a much greater (if not complete) reliance on market mechanisms to coordinate individuals' productive and consumptive capacities. Again it depends on which libertarian you ask. If you ask me, I'd recommend the "mainstream" Scott Sumner (Market Monetarist/Chicago) libertarianism which basically says enable market mechanisms for virtually everything you can think of, establish carbon(pigouvian) tax for negative externalities where private arbitration turns unjust, provide the oft-quoted Hayekian "basic needs" in the form of NIT (implemented as EITC in the United States).

If I'm allowed to get tangential and in case you're worried about monopolies, I'd refer you to the popular libertarian philospher Robert Nozick's description of a free market economy. He describes, in his book Anarchy, State and Utopia, the mechanism by which wealth forms, Wealth is formed only by peaceful individuals interacting with their belongs in a productive manner (Wilt Chamberlain argument). You are no worse off than what you were when others gained wealth, nullifying your (hypothetical) claim to injustice.

@username_10, I hope this answer is satisfactory.

Disclaimer: I have not had any sort of formal economic training. Economics is simply my side interest.

> **Comments:**
> **username_0**: username_8, thank you, I'll read what you recommend. However, I suspect that there must be a more or less simple explanation of what I am worrying about. In what I already read about libertarianism (and liberalism) I don'see any mechanisms that prevent people in such a society to abuse their power in forming monopolies. People's opportunities are different, they come from the differences in many things, in particular, from the differences in their professions. This system seems to compel people to become policemen and politicians, not physicians and scientists. Is that true?  
> **username_8**: Two things. Realistically speaking, how often do you see a political system built on non-capitalist (capitalism to me has a very specific meaning, free markets and trading rights to your belongings) mechanism being free of corruption and power abuses? If anything, a non market based system gravitates towards abuses of power. If the Nozick's economic description wasn't placatory :), I'd remind that any monopolistic corporation is very limited in ways it can abuse you. Do you really think Walmart selling cheap stuff is the same as the government stealing 35% of your hard earned income? Continued  
> **username_8**: Other than a few *contested* macroeconomic theories on role of government in boosting aggregate demand, libertarianism remains the mainstream economic theory. While almost all economies rely on state mechanisms to regulate certain aspects of economic exchanges, no major, modern economy is possible without free market mechanisms. That should be a pretty major clue that markets are the key to survival of the human race. Why do you think poverty exists in third world countries? Because of markets? It is precisely the opposite, markets are crushed in every poor country by political opportunists.  
> **username_8**: And your question about the system compelling people to become policemen and politicians. Not only is it not possible, because libertarianism emphasizes non coercion, but also because markets unleash productive capabilities never seen before. In fact a particular strand of libertarianism, objectivism, even celebrates people being productive, happy and satisfied with themselves.  
> **username_0**: username_8 in my opinion your reasoning is too theoretical. About poverty in the third world: I have reason to think that it comes not from some evil people who deliberately bring down the markets, but from those who, using their professional position, build economic and political monopolies, which are beneficial to bring markets into this state. And an unpleasant detail in this picture is that the construction of these monopolies is impossible without cooperation with the western countries with their liberal political systems.  
> **username_0**: And another unpleasant detail is that in Russia this happened under purely liberal slogans. Which confused people and turned them away from liberalism. I have a strong suspicion that the mechanisms in Africa, Latin America, etc. are the same.  
> **username_8**: I lived all my life in a third world economy. I have seen  businesses struggle to satisfy their customers because trade with other nations is prohibited, the amount to produce and distribute are regulated (leading to a lot of food and supply waste). I don't think at all what I said is theoretical. Clearly the absence of powerful, efficient first world businesses in the third world is a sign that they are prevented from operating there.  
> **username_0**: username_8, what is your country?  
> **username_8**: @username_0 I'd like to maintain my anonymity, but it suffices to say I'm from a Socialist country, fortunately from one of the milder ones, but still foolish to have caused hunger and poverty everywhere. Classic Keynesian fiscal stimulus from the government is derided as "too capitalist" by the populists in this country. Forget others, even Paul Krugman would mock my country for being so statist.  
> **username_0**: username_8, will it be dangerous even to name the country?  
> **username_0**: Anyway, username_8, the restrictions in trading are only a part of the problem, another part is what I told: the monopolies that appear in collaboration with the well-developed countries.  
> **username_8**: I do not consider monopolies engaging in rent seeking behavior to be a problem anymore than welfare queens. Behaviors exhibited by private entities (either welfare seeking individuals or lobbyist corporations) are the result of incentive structures made available to them. If you were arguing against one, you have to argue against the other too.  
> **username_0**: username_8 this sounds indeed intriguing. This must be a very unusual socialist country of third world, with hunger and poverty, if welfare seekers pose a more important problem there than the monopolies in power. You should name it, othewise it will be difficult for me to believe in its existence.  
> **username_8**: To be truthful, I'm not complaining against the welfare system we have in place in our country. I'm complaining against the rampant government intervention into the market place leaving the private sector almost dead. We liberalized couple of years ago which gave us breathing space. And I wish to make a clarification, you seem to be under the assumption that countries with a high standard of living are Socialist. It's not true, *all* successful countries are market based economies with some welfare functions. Also, *no* market economy has left its citizens in rampant poverty.  
> **username_8**: The same cannot be said of even one Socialist country. We have derailed much from our question but you can check out the indices of economic freedom and see how free markets lead to prosperity.  
> **username_0**: username_8  in my opinion. this statement  > **I'm from a Socialist country, fortunately from one of the milder ones, but still foolish to have caused hunger and poverty everywhere**  -- contradicts to this one  >  **I do not consider monopolies engaging in rent seeking behavior to be a problem anymore than welfare queens.**  As long as you do not call the name of the country, I can't understand (and believe) you.  
> **username_0**: username_8, I only now understood that you probably mean either Cuba or Venezuela. If so, this explains your views.  
> **username_8**: Alright. I'm from South Asia, specifically, India.  Check out the Wikipedia articles on Fabian Socialism in India. Liberalization of India in 1991.  
> **username_0**: username_8 excuse me for the silence. What you write sounds very strange to me. Are there welfare queens in India?  

---

### Answer by username_9 on 2018-11-13. Score: 1

The best study I know of on the formation and sustenance of monopolies is 'Enterprise monopoly in the US' by Austrian/Chicago Economist G Warren Nutter.

The best summary of this book I have found are at these Quora answers:

<https://www.quora.com/Are-monopolies-potentially-bad-if-they-disrupt-a-free-market/answer/Austin-Middleton>

<https://www.quora.com/Is-the-argument-thatall-monopolies-were-created-by-the-government-true/answer/Austin-Middleton>

(A one line summary is that monopolies tend not to be formed in an unregulated market)

> **Comments:**
> **username_0**: username_9 I was asking this having in mind applications to the economic life in Russia. What is the libertarian explanation of the events here? What "liberal reformators" of 1990-ies were doing here, was that the right strategy from the point of view of libertarians?  
> **username_10**: Hi there, it is better that people write up their own answers in their own words, rather than just link to someone else's answer, thanks  

---

### Answer by username_11 on 2019-07-19. Score: 0

username_0, the problem with Austrian economics in and of itself, just like with Keynesian economics, is that these are economic theories created a long time ago. They are currently front and center, one being applied by those in power, the other being touted by those who may or may not want to be the ones in power instead. Economic theories that do not apply to our modern world become ideology, no different than those believed by the Socialist Workers Party, the United States Communist Party if they still exist and the Libertarian Party. Having been around members of all these organizations, I found them all to be out of touch although I would say that ideally, Libertarianism makes more sense to me these days, but grabbing on to an ideology is never a good way to develop a full and healthy understanding of economics and our world today.

If there is any economist that I would tout as part of some ideological group and still be accurate with our modern times it would be the Peruvian economist Hernando De Soto, the author of *The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else*.

The Von Mises/Austrian/Libertarian camp has not traditionally had a good answer for why capitalism failed everywhere else before De Soto came on the scene, now the Mises Institute pushes his work, but before the publishing of this book? Before 2003? Mises was definitely around before then and yet in my readings of his work, I don't see any explanation of why capitalism has failed everywhere else, but I did see a lot of why socialism had failed.

So what did De Soto teach us? He taught us that in highly dysfunctional economies, entrenched elites tolerate the informal structures, meaning the black market, working under the table, doing business in a currency that is not legal to use and so on, because these are less impactful on their wealth than formalized welfare.

I love how racist/classist people will mention that Latin-Americans are accustomed to welfare and thats why they swarm to the United States. Aside from this being a generalization, the fact is Latin-American governments, most of them anyway, do not have the huge welfare system we have here in the United States, so the comments are made by ignorant people who do not study the government and economies of other nations. In fact, in places like Colombia and Venezuela (pre-Chavez), government giving you a check for doing absolutely nothing is unheard of and the elites and government officials of those nations would scoff and laugh at the idea and possibly even follow it up with "let them eat cake".

So, as a result, an informal economy is tolerated by elites because they are sure as heck are not going to spend their resources to establish a welfare system such as we have here in the United States and they do not want an open rebellion of the disenfranchised.

Less dysfunctional societies such as ours here in the United States keep a tight rein on informal alternatives, forcing everyone but the most marginalized into the formal structure of employment or as I mentioned before, welfare.

I am giving you a long-winded answer here because I am having to cite my sources in anticipation of those that disagree demanding I provide some citations.

So lets go from De Soto, the economist I would tout more than Von Mises if I were still a libertarian and lets look at Christopher Wickhams' book, *The Inheritance of Rome: Illuminating the Dark Ages 400-1000 AD*, it is not a work of economics but I often find that historians get it and prefer their analysis over an idealized economist from a century ago.

Wickham explains that after the demise of the Western Roman Empire, there was still loyalty to a central authority, after all, the people were afforded rights and limited self-rule within village councils and allowed ownership of land, but these rights were extinguished by feudalism, which bound the peasantry to the nobilities' persons and estates.

I am suggesting here that Von Mises is out of touch because in the current era, the old formal structures of feudalism mentioned by Wickham have been replaced by new structures of control, divestiture and disenfranchisement that others refer to as *neofeudalism*.

In other words, in this new neofeudalist economy that we exist in here in the United States, we technically have a political voice, but in reality the levers of governance and financial power are in the hands of global corporations and the top 1% of households and to a lesser degree in the top 10% managerial class that serves the interests of what others have called the *New Nobility* or *New Aristocracy*: technocrats, media editors/producers, professionals, lobbyists, etcetera.

Von Mises does not have much to say on the above does he? Of course not, he was living in a different time period, but ideology infused organizations insist on grabbing on to works of smart people with theories that no longer apply to our modern world.

The ideas of Von Mises and the other individual libertarians love, Ayn Rand are ideas that can only work in a system where there is broad-based ownership of productive capital, that is, capital that generates permanent income streams. This is the necessary foundation for political power to also be similarly broadly distributed.

Not only De Soto explains how capitalism has indeed not worked in places where asymmetry of ownership and power were present, but so does Daron Acemoglu, Killian professor of economics at MIT and University of Chicago professor James A. Robinson in their book *Why Nations Fail*. Again, more current, more relevant economists who explain that if this asymmetry of ownership and power were present since the birth of a nation, these societies are incapable of changing the power structure. Paid lackeys glorify the facades of democracy and free markets, but everyone knows these are facades.

How is Von Mises' theory working for the disenfranchised of Russia, not very well is it?

I do not know all the details of whats going on in Russia so I will stay focused on what I do know which is the United States. We are now in an advanced form of neofeudalism which is primarily financial which have generated enormous premiums for mobile capital, monopolies and specialized expertise in software and finance, while devaluing labor's value in the fields that can be profitably offshored or mechanized with software and robotics.

This is our modern situation, Von Mises will not help you understand this, he is long gone my friend. You need to do your own research and analysis of your situation and how to remedy it.

For example, I read this study from Princeton University:
<https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf>

which found that voters have very little power here in the United States, effectively making the United States an oligarchy.

We do not live in a capitalist economy here in the United States or anywhere else for that matter. We have a dominance of state-controlled markets which is the foundation of a neo-feudal oligarchy, I suspect Russia to be no different than this. You see when you control the state, you can protect state-enforced cartels and monopolies such as institutions of higher learning and the health industry.

Control the market and you can buy political power with the profits. I will not be getting into what a neofeudal state-market structure looks like here.

Austrian economics does not speak on the divergence of formal rights and the actual structure of wealth and power as the core characterist of neofeudalism and oligarchy, so read on, the answers you seek are elsewhere. Although I focused on the United States because its what I know, neo-liberal globalization has us tightly coupled so I do not think it is much different in Russia.

Let me guess, much like United States citizens, you retain the right to cast a vote, but your vote has little actual influence over the government's decisions. Every citizen retains the legal right to acquire productive capital, but only the top 5% own meaningful amounts of productive capital and the majority of this capital is owned by the New Nobility, the top 0.1% of Russian households?

Most of my career has been in the non-profit sector because I always wanted to work in progressive organizations that were about solving pressing social problems, I became disillusioned, libertarians convinced me its because non-profits and governments are not the answer, the private sector and capitalism is the answer. Went through that whole process which I will not get into here, but in summary, today I understand that the problem was not that its a non-profit or a government agency and they don't work because they waste money and all that other ideology spouting.

The problem is in the current power structure, earning a university degree expecting to find secure employment, representatives expecting to make real change, progressive non-profits expecting to solve pressing social problems and so on do not work.

None of the above have the power to correct the structural sources of decay.

Don't believe me, just look at the reality of the situation. College graduates like myself these days find that their diplomas have little market value except for those of select universities. Newly elected representatives find that any independence is punished by the party machinery. Idealists find they cannot change systemic roots of the problems. Everywhere, people are co-opted or corrupted by perverse incentives, sclerotic bureaucracies, self-serving insiders, crushing debt loads and all the other realities of a highly asymmetric neofeudal oligarchy.

And those that will be offended by my answer are only serving to prove that indeed there is a tremendous divergence between the experiential reality of United States neofeudal power structure and the idealized expectations of its people, which will be a wellspring of non-linear social unrest in the end by the way.

So if you must have a "libertarian" point of view I would look to the Peruvian economist Hernando De Soto, his work seems to be acceptable in the eyes of the Mises Institute, but I would also look at Daron Acemoglu and James A. Robinson.

> **Comments:**
> **username_0**: username_11, thank you very much, that is interesting! I read the book by  Acemoglu and Robinson, it is even translated now into Russian, and it is indeed a good explanation of what happens around (I would say the best one that I heard). I did not hear about De Soto, so thank you, I'll try to find his works.  
> **username_0**: You also use the word "feudalism", and I find it very useful for describing the situation. I know a Russian sociologist Vladimir Shlapentoh, who wrote two books about this, one about Russia and one about the US. Do you know other useful sources on this topic?  
> **username_11**: @username_0, I am also learning from you. I did not know about Vladimir Shlapentoh, I hope to find his works in English. As far as other useful sources, you may find value in the work of evolutionary biologist Peter Turchin, he has written many books on the rise and fall of nation-states, empires and the evolution of societies. I think one book in particular, War and Peace and War: The Rise and Fall of Empires covers some history related to Russia and surrounding region. All the best.  

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