In this conclusion to the series on the two major streams of libertarian thought I want to look at economics. Ivo Vegter has (repeatedly) said that the purpose of markets is: "to distribute scarce resources with the greatest level of efficiency". Now this almost sounds good, unless you recall from the first post in this series that capitalism defines efficiency rather differently than most people – applying that definition it translates as: "to ensure the rich get richer and the poor get poorer". But let's assume that in fact right libertarians in this context mean efficiency to mean something similar to the meaning of the word in engineering: with the least waste. As long as "waste" doesn't include pollution this almost makes sense (forget that a core part of engineering principle states that you achieve least waste by ruling out duplication of effort – while capitalism attempts it through exactly the opposite approach claiming that multiple producers of the same good is more efficient).
The basic theory goes something like this: competition drives prices down, profitability and cost drive them up. Combine these and the market automagically sets the price almost exactly where the law of supply and demand predicts it should be (at least, if you wait long enough). Most economists agree with this as a basic principle but right libertarians under influence of Austrian economics now go a step further – from this rule they conclude that *any* price for which something can be sold is by definition the correct and fair price. There can be no rip-offs, nobody can ever be cheated or lied to and nothing can be sold for too much more than it's value because competition prevents it – because in fact "the right price is whatever the market will bear". If anybody is prepared to pay it, that makes it fair to charge.
This is a major leap of logic which practically nobody (economist or otherwise) agrees with – the major logical flaw is that the market mechanism takes time to set a price to where supply and demand predicts and then has to constantly adjust it. This means that "whatever you can get" is not in fact by definition the appropriate price point – and there is actually room for fairness and moral concern for others to influence price setting. Of course a corporation is forbidden by law from having such concerns and this is (one of the reasons) why left libertarians believe all businesses ought to be worker-owned-worker-managed democratically controlled cooperations instead.
The biggest problem however happens at the point where Ivo's statement of Von Mises's definition is found to be begging the question. What if the resource isn't scarce ? Some resources aren't, in fact for some resources the supply is in fact infinite. The law of supply and demand leads to a logical conclusion that a free market ought to set the price point of anything with infinite supply at zero. In fact zero is also the appropriate price-point whenever supply exceeds demand by a significant enough factor.
Now this raises a question: how do you pay initial production when supply there-after is infinite ? In our age this is true of anything abstract – of all information and ideas and intellectual creation. The market did not respond by setting a 0 or even a near-0 price as the supply of these items became infinite. It did not respond by finding a new way to fund just that first step of creation either. Instead the market responded by buying laws to create artificial scarcity through the institution of a legally controlled monopoly on reproduction. They call it copyright and patent laws. That the basis of these laws predate infinite supply is somewhat beside the point – the laws were radically altered as supply became infinite to allow single entities (interestingly never the actual creators but rather the publishers) to hold a legal monopoly on reproduction so that they can deliberately slow it down and create an artificial scarcity to price the results.
This happened despite these industries having lots of companies healthily competing with each other. The very government interference in the market that right libertarians claim to despise is the only way these markets persist – yet the Ayn Rand institute actively campaigned against Lawrence Lessig during the supreme court case he fought to just prevent copyright from being extended yet again. Seems right libertarians are all for government interference in the market when it suits them.
Ironically in this very same market we have proof that you don't need profit-driven business to produce the goods and pay the producers. Both the free software and free culture movements have churned out high quality intellectual products – both practical software products and abstract artistic products by instead having the equivalent of an Amish barn-raising. A lot of people from the community show up, produce together, and get to share in the use of the result. Since a song or software program (unlike a barn) really is infinitely reusable, they have no qualm with everybody on earth using it for free. Many will ask for voluntary donations (the ultimate example of consumer-friendly pricing) – and however much they get, they are happy with. Courtney Love described it as: "A singer is in a service industry, like a waitress. We have to stop imagining we're selling a product and realize we're working for tips."
But surely this is a bit of a niche area ? Actually, no, it's not. In the vast majority of industries – production today exceeds demand, which ought to see massive global deflation and prices dropping like stones. In fact price drops only seem to occur in luxury goods and take rather a long time even there. Compare the price of a flat-screen television today with that of three years ago, but now compare food prices over the same period. The difference is that flat-screen television makers haven't been able to establish an artificial scarcity, food production has. In fact – every year – the USA and EU burn enough food to feed every hungry person on the planet three times over. They will cite logistics and such as a reasons but the truth is much simpler: they pay the farmers to burn most of their crops because that keeps the price of food artificially high.
True this is market interference and in honest many right libertarians have spoken out against it as well – but this is not the end. While maintaining artificially inflated food prices back home, they pressure poor countries to open their markets then use anti-competitive practises to put local farmers out of business – and sell their food at these artificially inflated prices. And every hour, 4000 children die to pay for the preservation of America's farming heritage. The thing is though – when right libertarians do speak out against this – they blame the recipient countries (apparently they didn't open their markets ENOUGH – which will somehow magically let them compete and put their local farmers back in business), they complain about farm subsidies but they never speak out against copyright law: which is exactly the same thing, and as the DMCA and SOPA shows encroaches more and more on individual liberty.
The soviet union used to have an armed guard at every xerox machine to prevent unauthorized copying. They didn't care much about copyright but they cared about censorship. Today we have 12-year old girls being sued for millions and pressured into settling for sharing a song they like – over and over, we have the BSA invading premises and holding guns to people's heads (well in Nicaragua they wouldn't *quite* dare to do that in South Africa.. yet), we have music industry hired-thugs storming people's houses like swat teams – suing and criminalizing your own customers can surely not be good business. Why doesn't competition and the magic market fix this ? Because there is no market. Only an artificial scarcity with government enforcement. So now our free world approach to copying is identical to that of the soviet union… the motives may differ but it's the results that matter (to paraphrase Richard Stallman once more – though this time exactly about the example he himself was talking about).
The left libertarian approach of cooperations bring the barn-raising methodology of production to any industry, preventing exploitation, market manipulation, monopolistic practises and all the other tricks by which wealthy capitalists attempt to subvert the market process (and constantly succeed). And in those industries that are truly post-scarcity, barn-raising production sets the price at 0 without any negative consequences or reduction in initial production. So I suppose as I look at the tattered state of the economy I am forced to remark: we can rebuild him, we have the technology – but he shouldn't look like this.


