28 December 2010

The Removal of All Doubt

Upon thinking on this further, the term “free market” is meaningless unless there’s real competition. Otherwise, we just have the meaningless difference between privately run-monopolies and government-run monopolies.
So someone becoming a billionaire is an example of there not being a free market. In a free market, competition would prevent people from becoming billionaires, because when people saw someone making huge money doing something, they would compete against him and drive down his profits.

This is a pretty cool tautology here, since HS makes his definition the argument.  However, his definition is rather stupid, since it relies on the assumption that businesses can only profit if a) they are a monopoly or b) if there is asymmetry of information.

Unfortunately, these assumptions are demonstrably false.

Ultimately, a business can only make a profit if it sells something that people are willing to pay more than production cost for.  Monopoly power is no good against a boycott.  Monopoly power is worthless in the cassette tape market, since no one buys them.  In fact, the only way that monopoly power has any value is if people are compelled to buy the product.  If there is no compulsion, consumers can forego purchasing, or purchase a substitute good.

Informational asymmetry is also worthless, since value is not objective.  It doesn’t matter if the customer knows how much material, manufacturing, and marketing costs are.  All that matters is that the customer believes that he will gain more value from consuming the good than he would pay for it.

It also seems that HS believes in the labor theory of value, something purported by both Adam Smith and Karl Marx.  He seems to not realize that David Hume addressed this fallacy a long time ago.

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