CEE Interview with David R. Henderson

Dr. Stephen Hicks, CEE’s executive director, talks with economist David R. Henderson on seven myths about free markets.

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4 Responses to “CEE Interview with David R. Henderson”

  1. Reginald Says:

    This guy’s analysis is fraught with superficial assumptions and terribly juvenile examples. Monopolization of industry is not prohibited by law under free markets – a law preventing it would indeed contradict the term ‘free’ – and therefore it will undoubtedly happen. Competition necessarily means undercutting, price wars, new product investment etc. – some new products succeed, but others fail. So it is only a matter of time before one (or a VERY small few (2-4)) company eats up the market share of the rest and has enough capital to acquire its competitor/s. After a few iterations of this, monopoly/oligopoly is the only possible outcome. Your Blackberry example is ridiculous!

    Also, the amount of capital required to enter a market that already has a monopoly is immense so the initial inventor will inevitably get exploited by the financiers. The inventor is caught between a rock and a hard place. If he takes their 10% or all proceeds offer then he’s getting screwed, if he doesn’t then 100% of 0 is still a very small amount.

    But even if a good idea goes into production, what happens other than duopoly or oligopoly (from the above reasoning) – nothing close to the the fantasy paradise of “perfect competition” that is the foundation of your case for free markets.

    Free markets are essentially a set of equations that describe the vast majority of the populace’s experience of life caught between a rock and a hard place. Yes, we all have cell-phones. But the relative wealth gap is larger than ever. There is a concentration of capital at the richest 1%. Indeed, the richest 1% today has VASTLY more wealth than the bottom 50% does – in relative terms – to 100 years ago. Vastly more.

  2. Kaizen Issue 17 » Center for Ethics and Entrepreneurship Says:

    […] Also featured in Kaizen are student essay contest winners Jennifer Harolle, Alyssa Baggio, Derek Garcia, the Walhout Prize in Philosophy winner, Nathaniel Branch, and guest speaker Dr. David Henderson. […]

  3. Tamas Rozsas Says:

    I would like to reflect to Reginald’s comment. Monopolies may happen in a free market system but the monopolist cannot go to the extremes without hurting themselves more than the customer. There are always substitutes for the monopolist’s product or service and the more they charge the more good substitutes you can find. At least when you are free to choose. When the mopolium is maintained by the government it is harder to circumvent it. The fact that you found the blackberry example ridiculous proves that there are no such thing as perfect monopoly power without government enforcement.
    The inventor who needs money to turn her idea into a profit making project is not a victim of the investors because she is not worse off with them than without them. Without them she cannot make any profit as she does not have the funds.
    Free market does not mean perfect competition. Competition is imperfect because producers of similar products do the best they can to differentiate themselves from others – and in a free market system they are free to do it. There is nothing wrong with imperfect competition in a free market system. On the other hand, you can regulate the markets forcing producers of similar products to use the same design to push them closer to “perfect competition” and you end up with the worst communist nightmare.
    The set of equations is not free market, it is only a mathematical model of it. You can refine models to make them more accurately describe reality but simple models are better to help in understanding the basic rules. Free market does not work the way it works because of the equations. The model only helps to understand it. Regarding inequality, if you would have a chance to live in an equally poor society and in an inequal society where even poor people have much more safety and comfort which would you choose? Personally, I do not care if 1% of society has vastly more than I do until I have all what I need. Besides, in societies where people are forced to be equal in terms of money and private property, there are much bigger differences in power. You have almost the same amount of money as the communist party secretary but you can only buy food when he allows you to buy food.

  4. Kaizen Weekly Review » Center for Ethics and Entrepreneurship Says:

    […] this blog post, CEE interviewee David R. Henderson examines how the free-market efforts of such entrepreneurial legends as Cornelius Vanderbilt and […]

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