Revisiting Economic Liberty: A Dialogue with Ray Niles

Foreign.

Good afternoon, ladies and gentlemen. Here we are in the secular foxhole with a new guest. Well, actually a returning guest.Ray Niles is back to share with us his a couple of articles that I read of his on substack. He has a new substack called Capital Thoughts and two of the most recent ones.One was on cronyism and the other was on what I call the fallacy of perfect competition. And I have a bunch of questions about each one of those that I hope Ray will expand upon. Ray, how are you?

I'm doing well, thank you. It's good to be here. Good to return and be part of your podcast.

Yeah, great. We had a memory lane here, and so it's now 50, 50 plus episodes later. And you are back.So episode 50, you and your friend was on the show talking about really interesting phenomena and thing underground. So we will include that in the show notes.

Yes, absolutely, absolutely. All right, I want to kick it off with your article on cronyism.And what struck me is that you drew a powerful analogy between the First Amendment and economic liberty. What or who first led you to see religious disestablishment as a model for ending cronyism?

Well, it's a really good question, and actually, I have to give full credit to the novelist and philosopher Ayn Rand.In fact, I quote her in my article and she roughly, I don't have the quote right in front of me, but she said we should have separation of state and economics for the same reason we have separation of church and state. And so I wanted to explore that a little further, unpack it. You know, why do we have separation of churches?Why did the Founding Fathers, why did Thomas Jefferson, why did he consider that his most proud achievement?And, you know, he, of course, was writing in the 1700s, right after, you know, several centuries of bloody religious fighting and warfare between Catholics, Protestants, Protestants, Protestants, Muslims, Catholics. I mean, you know, everyone was getting burnt at the stake and it was bedlam.And his idea was that if we get government out of religion, there's no reason to have to then sort of petition government to promote your religious beliefs. You know, everyone is on an even equally free playing field.And so in economics, you know, what we observe, and it's one of the criticisms that the Marxists use against capitalism. They look at the world the way it is today, and they see all these lobbying, these pressure groups.You know, everyone's trying to get Congress to special legislation to favor their industry at the expense of the general welfare. And the problem is, is that we've Never separated state and economics.And so the idea is, is that we should, you know, the economic sphere should be free of state interference where we actually constitutionally proscribe. We prevent in the Constitution the government from passing laws to favor one business or industry over another.That means no price controls, no subsidies, no special laws. And if they didn't have that power. So that's the interesting thing with separation of state and religion.We don't see people lobbying the government for special laws favoring their religion. And it's for a very simple reason, because the government has nothing to give.They have no legal authority to subsidize construction of a cathedral or whatever it is. And there's a little bit of fighting at the margins as we figure what that really means, separation of church and state.But that's what we need in economics. It would basically eliminate the problem of cronyism that people, the Marxists say is an inherent part of capitalism. It is not.If we did this, we would not have this problem.

Raymond, you mentioned Ms. Rand there. And isn't that one character or several characters, your guy in Washington, right, that they talk about?

That's right. And it's famous in her novel Atlas Shrugged.There's a wonderful businessman, you know, a complete innovator, Hank Reardon, and he invents a brand new metal, you know, it's cheaper, lighter, better, you know, like we saw with Carnegie in real life or Henry Ford.But he needs his man in Washington just to prevent punitive legislation that would harm him, maybe by less successful competitors, less efficient competitors. So even he had to have his man in Washington just on a defensive basis.But what happens is when businesses realize they need to lobby government just to protect themselves defensively, you know, some businessmen then realize they could use that power offensively against their competitors. Hank Reardon doesn't do that.But, but the power to use government to protect can then become the power to, you know, also try to throttle your competition.

Yeah, and you also say that it's cronyism's not a moral failure, but an institutional failure. What is that? What do you mean?

Well, I think Hank Reardon might be a good example of that. You could say, well, lobbying, you know, it's corrupt and all that, but he had to do that to protect himself.So, you know, it's like, you know, just because something's illegal doesn't mean it's immoral. Well, you know, in this case maybe it's legal, the lobbying, but it's not, it's not immoral to do it defensively.If we have an environment where you're forced to do that. You know, it's not immoral to lobby. So I think it's an institutional failure. And if institutionally government has.There's basically no rule of law, government can pick winners and losers. It's going to invite corruption. And it does become immoral if you use this lobbying power to throttle your competitors. So I'd say it becomes immoral.But the possibility of people behaving that way is only because of this institutional failure.

I've always looked at it like honest businessmen are paying protection money. Does that make sense?

You know, you cut right to the heart of it. I think that that, that nails it. You know, you're paying off the mafia. Except in this case, the mafia is the government.

And I think, as you point out in your, in this article, Microsoft was the perfect showcase for that.That, you know, they never even thought about it because they're busy doing, creating software and helping millions of people around the world and all of a sudden get attacked. They have to worry about Washington.

But isn't that sorry that, you know, first it's Microsoft, next time it's Apple and then Google, and then they, you know, they in a way attack each other and they don't stand up morally.

That's true. But before that happened, Microsoft was naive and it's sad.It saddens me when I think about it, because he said, Bill Gates has quoted my article, he thought his job was to make great software and he never thought about Washington initially, had basically no lobbyists. And there was a quote I was looking for in my article that I remember, but I couldn't remember locate it.And it was a quote some congressman said to Bill Gates, he said, hey, Bill, where are your boys? I don't see your boys walking the halls. And what he meant was, I don't see your lobbyists walking the halls with checks in their hand to bribe us.Now in America, you know, I don't know how it works in other countries, but it's a legal form of bribery and it amounts to bribery. It's campaign contributions.You know, representatives and senators need to get reelected and it's expensive, but they even enrich themselves out of this. We can talk about that. But he's like, I don't see your boy. Hey man, where's the money?And then just like two years later, they get slapped with this massive antitrust lawsuit which was actually sponsored by Microsoft's less successful competitors. But then, sadly, as you point out, Martin, Bill Gates, this is a perfect example. And it really saddened me because I feel like he was innocent.He was quite innocent as a human when it came to business. But once they had this power, then Gates learned his lesson. After paying out billions of dollars in fines, almost having his company broken up.I mean, Microsoft is still getting fined today in the European Union by antitrust people. And so he built up one of the largest ever lobbying organizations in Washington. And then pretty quickly, he began to use it offensively.And one of his first things he did was to try to attack this new company at that time in the early 90s, a brand new company, Google. And you know, so it corrupts, right?This lobbying, you know, this cronyism because of the ability to lobby either defensively, it ends up ultimately becoming used offensively and it corrupts system.

Yeah. And you also say that lobbying is, quote, a predictable response to incentives, unquote.So what reforms, short of a constitutional amendment, if that's even remotely approachable, could realistically reduce those types of incentives today?

You know, ultimately we have to sort of pare back, step by step, the power of the government to pick winners and losers. Ultimately, we need a constitutional amendment. Now, I think the case is pretty strong.So I think it's possible at some point in the future, articles like mine, of course, Ayn Rand and others, until we get to that point, we can pare back government's power. And I think one of the first things, for example, is eliminate government's power to set prices, price controls.This goes on at the state level, the local level, the federal level, and we need to outlaw it with a federal law which could supersede state local law.Now I have another article which I'd be glad to come back for, where I talk about New York City's rent control, which is a horrible disaster for the city, but price controls is just a severe way to affect, to harm the economy and pick winners and losers. So then I think another one would be to eliminate the subsidies, just make it illegal. Just say no more subsidies.And you can think of poster childs, poster children that people can rally around in economics. It's been well established, for example, that sports stadiums that get subsidized by localities and states.The research is really well established that it's an economic loss for society, that the value of the resources that goes into it is greater than the value created by the sports stadium. Outlaw it. And so I think there's a lot of different areas like that that we can have specific legislation start at whatever scale.I mean, if you said no more subsidies for sports stadiums, Fine. Build up from this principle. Yes. So I think there's a lot to be said on that. But.

And I liked your analogy of removing the cookie jar. So what, I guess what, you can expand on that.What government powers do you think should be eliminated to get that cookie jar under lock and key or whatever?

Well, you know, the cookie jars to hand out favors. So, you know, subsidies, special regulations that might benefit you, harm a competitor, tariffs, you know, tariffs are a great example.

Great.

Not in a good way, but great.

Meaning.

It's very, very sad. I mean, the U.S. it was tariffs, one of the, it was one of the big triggers of the Great Depression, the worst downturn in modern capitalist history.You know, started in the United States, spread across to the WHO world and a huge tariff increase, the Smoot Hawley tariff, caused it. And this became well accepted among economists, even politically, that we have to gradually reduce tariffs.So you had things like the European Union abolish tariffs internally, the North American Free Trade Agreement, the World Trade Organization. 80 Years of tariff reductions or 75 years until Donald Trump came along. Right.And when Trump, especially his current term, his second term, where he really ratcheted up tariffs immediately, what you begin to see a train like a stream of those boys walking the halls of Congress, coming to Washington hat, you know, checkbook in hand for exemptions to the tariffs. That's the cookie jar, right? Special favors. Now, the tariff should be eliminated for everyone, right?Not just particular people, but it becomes a way of advancing your company versus other companies. Get rid of the cookie jar. So that's a good example in the present sense.

Let me throw this in because I didn't put this in, in the questions. Alexander Hamilton had a tariff system, if you will, and I think that was, it was put in place to, to help, I guess to help American industry.But it was, it was only for that. It wasn't to.I'm not a good explain explaining it, but I think it was, it was, of course it was supposed to end once the American businesses were established, but so it was, it was used for a different purpose or has it always been the same outcome or whatever. Does that make any.

No, you ask a good question. And it was actually Hamilton, it was, you know, he did this like it was called the Report on Manufacturers.He did another report which I forgot what it's called, but it set up our treasury system. He's very well known for that. The Report on Manufacturers, fortunately was basically ignored by Congress.Now the thing about tariffs in the past, so there's two types of tariffs There was something called a revenue tariff. And if you look in the 1800s in the US there was no income tax, no personal income tax, no business income tax.We had some excise taxes on things like whiskey. Right, the Whiskey Rebellion. But there was basically close to no internal taxation. And the government didn't need a lot of money, except in wartime.We would raise an army and then when the war ended, we'd disband the army, basically. So there was no welfare system. So government expenditures were the police, the courts and the armed forces.Protection of our rights to life and property. So government didn't need to spend a lot of money, but it did need money.And the idea of a revenue tariff was you're not supposed to pick winners and losers. So the tariff rate should be the same for everyone. Say a flat 10% tariff, everyone pays the same rate. And then, as opposed to.And writers of the time, they talked about this. The other type is a protectionist tariff. And a protectionist tariff is where you're picking winners and losers.Now, I have to say, Hamilton, I read the report on manufacturers. He advocated a protectionist tariff. He wanted to pick winners or losers. He wanted to do the picking. And he's very detailed.It's a disappointing document.I actually find it very sad because the reason I find it kind of upsetting to me is he read Adam Smith and it's clear when you read the report on manufacturers. And so he knew Smith's arguments.Now, Smith, one of the main reasons he wrote the wealth of nations was to attack the concept of mercantilism, the idea that government should use protectionist tariffs to pick winners and losers. And the whole mercantilist argument. Smith advocated free trade. And Hamilton writes about Smith's arguments, and then he rebuts the arguments.He advocates protectionism. And so when you read this, there's a laundry list of all the different industries of that day, this late 1700s.So, like chocolate manufacture, lead, the candle makers. Yeah, Candlestick makers. And he says, well, we should have a tariff of X cents on this one.And then he even advocated bounties, which are subsidies for exports. This one, we should have a bounty. And he gave all the numbers. Give me a break. That is a government planned economy. And you can debate.I'm not going to get into a whole Hamilton debate on this, but I think because he read Smith and rebutted Smith, he knowingly advocated government control over industry. It doesn't mean he wasn't a great man in many other ways. It's a whole other discussion which I actually would say he was.But he didn't know economics at all or not very well. Not very well.

When did Bastiat publish his book?

That was later, but remember that was. Well, no, I think it was later. I can't remember if it was after. I don't remember if it was before or after. The wealth of Nations.Gotta remember with the wealth of nations, it was the. Smith was the father of economics. He became the father of economics. He basically invented the science of economics with that book.

Right.

It's a definitive statement of economic theory. It's not all correct. And he said, the nature and causes of the wealth of nations, that was his agenda. Why are some nations richer than others?He said division of labor, but he said the division of labor depends on free trade.And one of his missions, one of the main purposes he wrote the book, was to rebut mercantilism, which was the dominant thinking of the time prior to Smith. After Smith, mercantilism was discredited. And Hamilton read it and said, no, no, you're wrong.You know, okay, now there's a whole, you could get to a whole mercantile discussion. I don't think we want to do that here. But you know, his big idea. So his big idea was we need to protect infant industries, right? Against competition.And you're right, at some point you get rid of the rules, but they never go away. See, the reason they never go away because you've created the cookie jar, right?And once you create the cookie jar, what happens is you have then vested interests who will engage in what's called special pleading.And they'll say, well, my industry's different, you know, and it needs the milk, the milk subsidy, the sugar tariffs, you know, and we've had sugar tariffs for decades and decades and decades.

You know, it goes on and on. Yeah, goes on and on. And I like that you distinguish between rights protecting laws and privilege granting laws. Can you?

Yeah. So if I say, you know, how do we get rid of the cookie jar? We're going to get rid of all kinds of government authority.But someone, you know, a response could be, well, what are you, an anarchist? No. You know, you need government.In fact, markets, free markets can't work if government isn't there to enforce contracts and to protect the right to life and property. So you need the institutions that do. The government has a monopoly on the use of force. And authors like Ayn Rand explained this very well.But the government, we need the police, we need the courts, we need the armed forces and contract law. Government has to be there to enforce contracts. So I think the key is to establish the principle that that's the purpose of government.And then there's a lot of details in terms of what is within government's proper authority along those lines. So yeah, government should protect rights, not violate them.

Okay, okay, now I've got a little devil's advocate here.If government completely stops steering capital or subsidizing industries or creating industrial policy, which I think has really come to fore, how do you respond to critics who argue that the US will fall behind China or any other aggressively coordinate economic development?

I would say this, if we do that, we will become like China. So China is a lot poorer than the United States.I mean our per capita gdp, I forget our average income in the United States, so refer to the United states is like 95,000. You can look up the exact number China's and again I'm just going by memory, might be something like 16, maybe 18,000.Anyway, they have great beautiful cities in Shanghai and everything. But the engine in China, the engine of their economy is their smaller private sector. Right?They're spending their, they're redirecting a lot of capital, they're trying to pick winners and losers and what they end up doing is subsidizing inefficient state run enterprises. It's a big drag, a big sinker on China.Now there's another example from Asia which I think is again a cautionary tale for the United States, and that is Japan. Japan did exactly that, especially in the 1990s.So when Japan had their real estate bubble blow up in the late 80s, Japan began an aggressive program of state sponsored, I put it in quotes, quote unquote investment. They built highways, they selected favorite industries, they gave subsidized credit and do you know what? It led to? What was called the lost decade.And it was more than. It ended up being a lost like 25 years.If you look at the charts, the China's, I mean Japan's per capita income just flatlined and they were soaring before this happened. So we don't want to emulate China or Japan in this regard.

So why don't look at the great example Taiwan.

So elaborate please.

Yeah.

And see how they have been impressive development for free trade in a small island, Formosa. Taiwan.

Oh yeah, you know, well, another Taiwan. So free trade benefited South Korea, it benefits Taiwan. And probably the best example is Hong Kong.Hong Kong, as far as I know, had no duties whatsoever. And at one time their port was the largest trading port in the world. And I Think it's been superseded maybe by Shanghai now.And Hong Kong always scored as number one in terms of economic freedom. They prospered dramatically from a base in all these countries. South Korea, Taiwan, Hong Kong were horribly affected by World War II.South Korea then had the Korean War on top of that. They started from nothing.And free trade was definitely a major component of success that helped liberate them upward, let capital flow naturally to its highest value. Government shouldn't dictate it. They don't have the knowledge to pick winners and losers. Right.They can create visible sort of albatross projects that are visible. People say, oh, isn't that great? The dam, the sports stadium.But what they don't see is the hidden cost that capital is going from a higher valued to a lesser valued use. And it's a recipe for impoverishment.

Yeah.

And when you mentioned Hong Kong, I visited it in 92, and then in 97, it was handed over because it was so called, this agreement or contract with opium thing with Britain. But now it's really disturbing that the Hong. They said that it will be two systems and one country, and they should have freedom of expression.And then. And now they are handpicked mayors and everything is controlled. It's really sad what we are doing right now. Talking freely on a podcast.That's almost impossible now, if I understand it, right. In Hong Kong, and before it was very open, I was talking to liberal politicians there in Hong Kong that were outspoken.But now it's really a dangerous situation.

It's very sad. It really is.

Yeah.

Jimmy Lai, and he's in jail, Hong Kong. Not to digress, but if we had a podcast right now, and I showed right next to each other an image of Xi Jinping next to Winnie the Pooh.You know, Winnie the Pooh the Pooh bear. Yeah. We're going to jail, guys. All of us. Because, you know, someone made that comparison, said he looks like Winnie the Pooh, which he does.He does look like Winnie the Pooh, but, you know, he has this thin, brittle skin. All authoritarians do.

And they've banned Winnie the Pooh is odd.

Yeah, yeah, yeah.

And recently Trump visited again.

Yeah, Trump has a thin skin as well. And Trump, I don't like you, and so far, you can't put me in jail for saying that. So far.

All right, let's segue into your other article that I really liked on Perfect Competition. You argue that perfect competition assumes away everything that makes capitalism work. What do you think this is? Excuse me?What do you think is the Most damaging assumption embedded in the thesis.

So anyone who's taken introductory economics, I'm a professor, I teach economics. So they're taught at some point this theory of perfect competition, a model of how the economy works. And so it assumes many things.It assumes the most. So I'll just jump right to it.The most damaging assumption is the idea in my mind that information is costless, that all information of production methods, consumer preferences, basically all economic data is equally known by everyone. Basically, that everyone in the economy is equally omniscient. It's an absurd assumption and it's just plaque blatantly untrue.I mean, if it were true, for example, we would all know what's in each other's minds right now without having to spend an hour long podcast talking to each other, right? I mean, scientists would all know the same things, inventors would all know the same things. And there's a whole.So they say if information is costless, then all these other implications are true.One is that it would make no sense for one business to have, you know, to be able to charge more than other businesses or, you know, to have a competitive, competitive advantage over other businesses. It says if this is true, then we should all be equal, passive price takers. Accept the prices in the economy.And if someone seems to have an advantage, it must mean they're doing something nefarious, right? They have an unfair advantage in the marketplace.So as an example, I mean, when Apple came out with its iPhones, I mean, if you look at an iPhone when it first came out, let's say an iPhone costs $1,200. But if you look at the cost of the components, the semiconductor chip and all the different things, it's like $600.They're getting a $600 premium on the iPhone. Well, under the theory of perfect competition, that's exploitation. It's terrible. It's a bad thing.So the central problem in the economy is that actually we have to discover information. An entrepreneur has to discover what consumers want.Steve Jobs had to anticipate that there would be demand for an iPhone and at tremendous risk to Apple Corporation. Develop the iPhone and it could have failed. And so often these things fail.And when you get it right, you get rewarded, you get that market power, those huge profits. That perfect competition says there should be no such thing as profit differentials between companies. So how about I also think of Thomas Edison.Look at him, he spent years perfecting, well, all kinds of things. He invented and his team of scientists, researchers invented. But the first practical incandescent light bulb. They tested at least 3,3000 filaments.He slept in his lab. I mean, if there was perfect competition, he should just somehow have it all locked away in his head.Now, if he gets that right, he gets rewarded by huge profits. That's good. That incentivates him. That gives him the material resources to set up his lab. So the competitive process is a discovery process.That's what Hayek said in his article, Friedrich Hayek, the economist I mentioned in my article. And perfect competition just assumes away all of this.

I see, I see. I appreciate you. But let's touch on Hayek's idea of dispersed knowledge. Can you elaborate on that just a touch or.

Yeah. So Hayek, he wrote several articles where he said the relevant market information, like, what do people want? Production processes.Like, you can imagine Thomas Edison discovering the light bulb or Henry Ford inventing the assembly line process for manufacturing things. All of these things, the relevant knowledge is where does it locate it? It's not just out there. It's inside each of our individual brains.And what Hayek says, the beauty of capitalism is that the market is a way of actually extracting.This is kind of weird language, but it's a way of extracting that information, pulling it out of everyone's brain and making it accessible for the benefit of everyone. So what I mean by is, you know, do I like. Do people like, is there a market for pepperoni pizza? Well, let's start selling it.And if people are willing to pay for it, they pay five bucks. They're paying a premium, they're paying an extra $2 compared to plain cheese pizza.Hey, that means there's a lot of people have a preference for pepperoni pizzas. Or how about the opposite example I think I mentioned in my article? Henry Ford says, I have this idea for a great new car.I'm going to name it after my oldest son, Edsel. And he spent millions and millions of dollars and he tried to sell these things. Well, guess what?He discovered very painfully, that the preference for Edsels wasn't there. People didn't want to buy them. Now, if we don't want an Edsel, it's not good. People are saying it doesn't benefit me. I don't want an Edsel.Henry Ford got a signal. No market for it. He loses money. Profit and loss. If you get it right, you make money. So here's the thing about entrepreneurship.It is really, really hard to figure out what's in other people's brains. But you get paid a lot of money to do it.

Yay.

And so that's what the market does. We kind of get this in a way. Like you can see it with inventions with like inventing a new drug, right?They get rewarded, they make money by selling the drug. But what people don't understand it as well as with entrepreneurs. And an entrepreneur is someone who takes an idea. Maybe they're not the inventor.Quite often they're not the inventor, but they put it together and they say, you know what I mean? Steve Jobs didn't invent all the components for an iPhone, but he put it together and he said that thing, that beautiful thing.Remember the video of him holding it up? I know there's going to be a demand for it. So they got rewarded for it.But under perfect competition, what you observe is that some companies like Apple are making profits at a much higher rate than other companies. And under perfect competition, that shouldn't happen.So that's actually seen as a negative because what these economists are doing is they're demanding that reality fit the theory instead of the reverse, that the theory should fit reality. And I use it like colorful language in my article. I say they're in, pardon it, you know, the language, but they're getting it ass backward, right?Theory should reflect reality. You don't demand that reality fit your theory, especially when you've assumed away important parts of reality with your theory.

I know, I tell you, I love that you called it a quote, sterile fantasy. And why is it still being taught today?

Yeah, that's a good question. Why is it still being taught today? And I actually have given this some thought because I think it has some didactic value.So for example, I use the analogy in physics. Let's say I'm teaching rocket design. And, and we say, okay, just for simplification, let's just assume no air friction, right?And we could talk about the force of gravity, how big a rocket has to be with enough fuel to escape the force of gravity. But of course, you would never build a rocket without adding back in air friction, because that's a drag. And the rocket, you know, won't work.It'll come crashing back down to earth. So what? In economics, it's useful in understanding the pure forces of supply and demand and, and how they set prices.So you say let's just assume away problems of information, so it has value there. But I think there's a bigger reason why. So that explains it as a teaching tool, right? But why did it become a normative standard?Why did it become an ethical standard by which markets are Evaluated. And I think that has to do with I think two things, but I think one of them is Marxism.And I think the reason is that Marx said that capitalists exploit the workers and profits come at the expense of workers. So capitalists are immoral exploiters. We need to expropriate them, all that stuff. So the wealth that they make is evil and all of that.And perfect competition kind of falls right in line because perfect competition is saying, well, if we have the ideal economy, everyone's a passive price taker. No one's making more money than anyone else. And it kind of fits in with this antipathy towards wealth and profit.So that's one sort of thought that I have about it. And the other thing that kind of is related to Marx because I think, and Ayn Rand talks about this.The ethics behind Marxism is altruism and the idea that your moral purpose is to serve the needs of your fellow man. So the idea is you should profit from it. So if you're a business person, you should be a passive producer.Sell it, don't make any extra profit, just sell it at the lowest possible price just to barely cover your costs. That's what perfect competition describes. So I think that it's this moral antipathy to profit making and wealth and capitalism.And I've discovered, I taught at a university, there are a number of my colleagues were basically Marxists or left wing type people. That's very common in academia. And I think it's common for people to shoehorn their understanding of economics to fit their pre existing morality.And so I think perfect competition just, it lends a scientific air to their pre existing altruistic and Marxist views.

That's pretty damning for them actually. And so antitrust to me is the perfect example of what Mr. Ann called the hatred of the good. Because it is good. I think.Yeah, you just, I think you just said the same thing pretty much, didn't you?

Yeah, yeah, yeah, I think it is, you know, because you know, these entrepreneurs are great benefactors of human to humanity. Every day, you know, I tell people, I tell my students, you know, who paid for Jeff Bezos's yacht with the helicopter on it?I said each one of you did. When you hit the button lying in your pajamas and have goods magically delivered to your door. Do you think it's magic? No, it's not.It's billions of doll dollars of infrastructure. It's that logistical prowess and all these different things.John D. Rockefeller, it just really saddens me because he was the first man prosecuted under antitrust and the history textbooks they have it, there's such hostility, again I think, driven by Marxism, that they just assume that for example, Rockefeller was charging high prices for oil and offering a lousy product and exploiting people all around them. Do you know Rockefeller, by figuring out the mass economies in oil refining, lowered the price of kerosene by 88%. 88%.And in the 1800s the primary source of heat and light for Americans was, was kerosene. This is before electricity. Imagine the beneficial effect this had on the lives of poor people. The Marxists claim to love poor people, they don't.But the poor people, the middle income, everyone whose lives were so enhanced by what Rockefeller did.So what people forget is that the wealth that Rockefeller has is, you know, it's the flip side of wealth that he's of benefits that he's creating for all the customers of his products. You know, it's win, win, it's the creation of wealth. It's not a zero sum game, it's a positive sum game.So you know, antitrust, if you look at the record of antitrust, and I think it's interesting because the textbooks say, oh well, what do monopolists do? They charge high prices, they have shoddy products. Oh really? Well, what does the historical evidence show? You just don't see it. You don't see it.Rockefeller lowered prices dramatically. In fact, he even improved the quality of kerosene and other products. That's why it was called Standard Oil. He standardized the quality.Alcoa Aluminum company, Microsoft, tremendous innovators today. The leading tech companies that all of us use their products, Amazon, Google, Facebook. Not all of us are on Facebook.And I think I'm missing one or two others. All of them have paid billions and billions of dollars in antitrust fines.Actually it turns out a majority of them levied by the European antitrust regulators. But it doesn't matter. The US did it like $30 billion of fines and, and these people, they're benefactors of humanity.Now I actually have an article I wrote in another forum where I talk about the two definitions of monopoly. And this is one of those words. Ayn Rand calls it a package deal.And so there's a superficial commonality which is large market share, you know, having a dominant market share or maybe even 100% market share. Well, think about what's included in there. You have companies.The only way you could get a dominant market share where there's free entry, meaning anyone can compete with you, is by offering a superior product, an innovative new product or by lowering the price, Rockefeller lowered the price of kerosene. Apple developed the iPhone. Ford kind of did both. You know, it's the only way you could get large market shares. And in a competitive world, no.1, You can't keep the market share unless you keep innovating. Apple is a good example of that. And it never lasts forever when someone else comes up. But what's the other type of large market share?How about the U.S. postal Service? How about the French salt monopoly in the 16 and 1700s? How was that enforced? It was illegal to compete with the owner of the French salt monopoly.They charged a price 10 times higher for salt than neighboring areas. And if you tried to smuggle salt, you'd be executed for it. The Postal Service, it's illegal for anyone else to deliver first class mail.And so you get those problems of monopoly, high prices, poor quality. But it's only when it's a government sponsored monopoly and competition is banned.And what gets me is that, but this distinction gets obliterated and it gets lumped together. And that's what happens with antitrust laws.

Okay, okay, let's wrap up here. I've got a couple things and I want to throw this in too. The latest Marxist fad is the Abolished Billionaires movement.I don't think they realize that if you do that, you abolish the ideas that create everything that we live by or live on would disappear. Does that make you.

Oh yeah, I've actually written on an article about that. It's called Celebrate Billionaires don't get guillotine them. What I referred to was this is about five or six years ago.It was the day it was announced that Jeff Bezos at the time was the world's wealthiest person. And a bunch of protesters built a guillotine, you know, to chop your head off and put it on his front lawn.And I actually said at the time, I said, I wonder where they got the parts for it. Did they order them through Amazon? But Jeff Bezos, what was his wealth? What was his billions?The reality is his yacht with the helicopter on it, his estates, was a tiny, and is a tiny fraction of his wealth. 95% Plus of his wealth consists of his shares, his ownership stake in the company he created, Amazon.It consists of the warehouses, the trucks, the logistical infrastructure and all that stuff. So if you abolish billionaires, what you're doing is you're abolishing Amazon. So you're abolishing, forget it.Get rid of Amazon, you're abolishing the iPhone, you're abolishing gasoline delivery that you could buy with your car. Most of those billions consists of capital. It consists of the ownership of the means of production.So the only way you could ban billionaires is by liquidating the means of production. It would be a disaster. We've gone down that path. Humanity has. 1917 In Russia.

Oh yeah, that's right.

They banned billionaires.

They lined up people and shot many, very many of them. Not just doing it.

That's right.

One of these two pet peeves that I want to finish up with.What do you think about the recent spate of disclosures that are what I call congressoids and hopefully people will get the reference, come to Washington with modest means, yet now have portfolios worth tens of millions of dollars. Isn't that cronyism and insider trading rolled all into one?

Yeah, it's pure cronyism.It's particularly nasty cronyism because the way it works is they know they're going to pass a law or regulation that will affect the economic or the well being of a company, which means it's stock. Right. So stock price just reflects the future profitability of the company. So let's say you pass a tariff that'll hurt a company.You can sell short the stock before that punishment goes through. It's pure insider trading. But it's insider trading driven by pure cronyism. It's only cronyism that makes it possible.So in the reverse, you could say there's a subsidy that will benefit.Like before the CHIPS act, this was a subsidy sponsored, I think it was in the first Trump administration to give like half a trillion dollars to the US chip manufacturers. Why did they need the subsidy? They don't need the subsidy. I mean, capital will flow to where value is being created.If you have good ideas for making chips, plenty of investors will buy shares in your company. So instead we're sending like half a trillion dollars to say companies like intel, which probably at the time are not very well run.They're having problems, maybe they should go out of business. Right.But if you know the subsidy's coming and the stock's been driven down because they're doing poorly, you buy the stock before the world learns of your huge subsidy program. When you become rich, it's very ugly, it's nasty, it's really ugly.

And at the same time, he did the tariff to this semiconductor and chip manufacturers in Taiwan.

Yeah.

So they had to then go over to USA and said, we will build a factory here. And then he lifted the tariff.

That's Right. So, you know, it's, you know, I think it's the reason, I think it's, you know, cronyism by individual companies is bad enough. Right.And there's this defensive element where you, in a way, you've got to be in there. Like Roark had to have his man in Washington. Microsoft had to have their people.And it's wrong when they use it offensively but you know, when the government does, they're supposed to enforce law and order and they're literally trading on. And a way to think about it is they're trading on the blood of people.You know, it's not literally their blood, but they're going to create victims and create winners, which means, you know, winners and losers and they're going to, they're going to profit from it. Those are ugly profits. Those aren't real profits, you know, earned by creating things. But people might use that word, profit.But if the Marxists were against that, which I don't think they focus on, but if they were against that, I would agree with them. But instead they focus on the wrong thing. Profits earned by the creation of value by capitalists.

All right, Ray, thank you, thank you for all this. But I do have one more. Please, one more question. What do you think of critics who claim that the stock market is nothing but a gambling casino?

Well, you're asking the right person. I used to be a stock analyst for about 15 years and, and my job was to forecast stock prices.Now I'll just say it, you know, I know very well in a firsthanded way that information is not costless. Right. Because what a stock price represents is the present value of future profits. Well, what's going to happen in the future? No one knows.No one knows what's going to happen in the future. And it's very, very difficult to figure it out, especially when you have major new technological innov.So for example, this is why venture capitalists who will finance when there's new technology like the Internet today it's AI or could be medical technology. Maybe only one or two out of the 20 companies they finance will actually become very successful. Most of their investments are write offs.That's how hard it is. Now I wasn't in venture capital, but I was dealing with established companies. It's very, very difficult to predict the future.So here's something about the stock market. It reflects. So it reflects you're investing on the expectations of the future. So there are two things that affect a stock price.Objective reality, meaning companies either will become profitable or Not. And that's going to factor into stock prices. But it's your assessment of that, but as assessed by our fallible human minds.And the reality is it's so hard, many people are going to get it wrong. And you can have waves of opinion. So stock prices, you could say, well, the stock price should be at a certain level.I'm trying to holding up my hand, but there's no video here. But it should be so high. But it shoots much higher than that. That doesn't mean the stock market's irrational.It means it's very, very difficult to know what the future will hold. Now I'll tell you.The reason I'm a big defender of the stock market is because at the end of the day, the stock price will reflect what actually happens. So let's say companies don't make any money. You invest in companies, right?And if they make no profits, that stock will eventually go to zero every time without exception. Right. And the converse is true.If there's a company that a lot of people are skeptical on and you invest in it, you get it right, and they actually end up making a lot of money, that stock price will go up. So it reflects reality, but as processed by human minds. And that's why there's volatility.You're also dealing with a highly uncertain future, but it's reality driven. So I'm a big defender of the stock market. It's all good the way I see it.

Very nice, very nice. Thank you, Ray. Thank you.All right, ladies and gentlemen, we've had the pleasure of having returned guest Ray Niles with us today talking about a couple of his great Substack articles. Ray, thanks for manning the foxhole with us.

A real pleasure. Martin Blair. Real pleasure and thanks for having me.

And Blair and Raymond, I will do a call to action here. So you the listener, if you value this, you could then send a donation through something called Boostogram or Super comments or streaming satoshis.So that's a part of a bitcoin.And then you could use a new modern podcast application like TrueFans FM and I will add Raymond you to the split here so you could then get something in return for your great knowledge and so on. And also at the end, please tell where the listener could find you on the Internet.

Oh yeah. So my substack is called Capital Thoughts by Raymond Niles N I L E S and the website for it is Raymond Niles R A Y M O N D N I l e s.substack.com.