Saturday, 15 February 2014

The Invisible Hand

... is the expression used, among other things, to describe the phenomenon that even though the private economy is split up into lots of smaller organisations, some co-operating and some competing, when you look at it as a whole, it looks as if it had been deliberately organised that way to achieve a reasonably near-optimum level of output, employment, profits etc. (in the absence of state intervention and natural or government-granted monopolies and so on).

So the Honda car you bought from the Honda showroom was not really built and sold to you by one huge organisation called "Honda". There is an endless chain of sub-contractors, suppliers, franchisees and so on. For some reason, things tend to work slightly better this way, if there are lots of smaller enterprises, each focussed on doing one or two things really well.

Now, if the entire Somerset Levels were owned by a single landowner, it seems likely that he would have looked after his own interests by dredging rivers, digging more channels, keeping certain areas forested, leaving marshy bits at the edge of rivers, building his buildings on stilts or on higher ground (or whatever it is that he would do) and so on.

But the Levels are owned by 1,000 farmers with an average of 170 acres each (source). Each of them is trying to get as much out of his little bit as possible, so the farmers on higher ground chop down their trees; the ones near the river want to use all the land rather than leave it fallow; if your farm is on low lying ground, that's where you'll build your buildings; I'm not aware that they all chip in to a common fund to dredge rivers.

UPDATE: they do have Drainage Rates actually, see comments.

And so things go wrong, and when things go wrong, they all start whining that it is the government's responsibility. I suppose it is true that the government absolved them of this responsibility and then messed up, but all the same, it illustrates the general observation that once it comes to land ownership, The Invisible Hand simply does not function (which in turn suggests that land ownership is the result of state intervention or a monopoly situation).

See the related topic of retail mix control. A large part of the reason for the demise of "The Traditional High Street" is precisely because they are divided up into tiny units, each owned by a different people, and there is no incentive to co-ordinate and co-operate to get the best overall use.

47 comments:

Bayard said...

Very interesting reading the Wikipedia article on the Levels. Todays floods are nothing, it seems, compared to the great floods of the past, the last being as recent as 1919 (and the most recent inundation by the sea in 1981).

State involvement in the drainage of the levels appears to begin with the arrogation of all water in the country by the Water Boards. Before that, it seems, things were handled more locally.

Tim Worstall said...

"I'm not aware that they all chip in to a common fund to dredge rivers."

They do. Drainage rates. And they have done for centuries.

The argument is actually that these drainage boards worked well up to the mid-90s. Then some of the functions were taken over by the Environment Agency. Which has rather different ideas about how things should be managed.

http://www.somersetdrainageboards.gov.uk/finance-rates/drainage-rates/

Mark Wadsworth said...

B, yes, it's a local problem for local people which requires local knowledge and local funding.

TW, aha, I have learned something new. That page says rates are 6p in the £. The £ of what? How much is it per acre?

View from the Solent said...

Not so much the Invisible Hand as the Little Platoons.
"....As it became clear that the flood waters on the Somerset Levels were beginning to rise dangerously high for the third year running, I set out to find technical experts who could explain just what had gone wrong.

I discovered what I was looking for in the members of a small task force set up by the Royal Bath and West agricultural society, which from the mid-18th century had organised the effective draining of the Levels, after they were first reclaimed from a marshy wilderness by Dutch engineers in the reign of Charles I. These farmers, with long practical experience of working with the local drainage boards, along with an eminent engineer who chairs the Wessex flood defence committee, were in no doubt as to why in recent years the Levels have become subject to abnormally prolonged and destructive flooding.

The problem began, they said, in 1996 when the new Environment Agency took overall responsibility for managing Britain’s rivers. ..."

http://www.spectator.co.uk/features/9137131/instant-wildlife-just-add-water/

Some Christopher Booker polemic is involved, but it paints a different picture to your every-farmer-for himself argument.

Lola said...

What TW says.

I worked closey with one of the Norfolk Fens IDB's in the learly '80's and they worked very well, and with the lndpwners and other interesyed parties. What has happened is that a load of central planning bureaucracy has been applied and basically screwed it all up.

DBC Reed said...

Tim Worstall (what's he doing here? What's happened to his own blog? Much missed) says that all was well with local drainage management till the EA took over (reflex knock anything public sector).Bayard (usually knocks EA/public sector) says inundations frequent before: see 1919 .
Everybody is missing the enclosure angle here : the post 1794 enclosures map for Somerset (see Net) shows the area east of Westonzoyland peppered with enclosure projects which, as in the Fenland, consisted of trying to get at the peat, then the peat shrinking cue floods, mass pumping, and the usual "Agrarian Revolution" fuckwittery with the common people forced off the land which came to support far fewer people than before.
Better the whole area had been land nationalised and strips rented out to farmers who would pay for any necessary drainage out of the rent. If they had rented their houses on the levels they would put up with any floods which would not inflict any capital loss.
The loss of the traditional High Street is all down to the abolition of Resale Price Maintenance in accordance with the usual EU treaties.See definitive work on the subject by Helen Mercer (on Net).

Bayard said...

DBCR, get off your high horse and go and read the Wikipedia article on the Levels. They were being reclaimed already at the time when the Domesday Book was being compiled. It's not something that started with the enclosures. Nor was there any "mass pumping" except into your beloved Huntspill River, because it wasn't built deep enough. One steam engine at Westonzoyland and two windmills doesn't equate to mass pumping.

I'm not attacking the EA because it is a public body as you seem to think, I am attacking it because it's f*cked up. I'm just as likely to attack a private body like the National Trust, if they f*ck up, and believe me, they can be worse than the EA. Incompetence, laziness and greed can be found in all walks of life and should be attacked wherever they are.

Tim Worstall said...

p in the £ of the value of the agricultural land I think. It's an LVT pretty much.

And DCB: I've not knocked anything public sector at all. I've knocked a centralised bureaucracy that doesn't work as against a local organisation that did. That local organisation also having been part of the public sector.

DBC Reed said...

@TW
(No news of an immediate resumption of blogging, which is a shame.Spending too much time on here which, since we basically agree with each other on most things leads to bitter arguments on trivia).
The ever helpful Sedgemoor District Council' which is trying to coordinate the development of the area particularly Bridgwater consequent on the arrival of big cargoes of EDF money, apportions responsiblity for land drainage between the EA, (mainly rivers); the Internal Drainage Boards (mainly rhynes); themselves and riparian landowners. As all have screwed up ,not surprisingly in the circumstances , it is not on to blame the EA only because its the biggest.(The private sector does n't have any bureaucracy of course.Funny when two competing firms merge, they can ditch one HR department ;one marketing dept etc proving that competition multiplies parallel bureaucracies QED

paulc156 said...

The third and fourth paragraphs alludes to the 'tragedy of the commons', whereby actions [or inaction] of individuals for reasons of expedience eventually degrade the environment. Though Ostrom won her Nobel prize a few years back for refuting this.

Lola said...
This comment has been removed by the author.
Lola said...

@TW. Quite. I know for a fact that the IDB's worked well.
Plus, even then the drainage system was designed for (say) a '100 year event'. To design andprovide for a rarer event - e.g. 1 in 1000 years - wwould likely have a negative cost benefit analysis - it's just less costly to repair the damage than try and prevent it. Especially as the land is low value (i.e. if London was inundated there would be a major loss - hence the costly Thames Barrier). Trouble is none of the people banging on about this are actually Civil Engineers.

Bayard said...

"As all have screwed up..."

And your evidence for this assertion is..?

Mark Wadsworth said...

@ all of you, yes, it is quite clear that The Levels have been dredged, drained for thousands of years, it is "artificial" like The Netherlands.

And all that drainage is a collective effort; in the past, it has been managed properly, in recent times it has failed.

But that does not detract from the fact that there is no Invisible Hand with land ownership, there has to be a conscious, collective effort and decision making for overall common benefit (even though this might be to the disadvantage of some individuals).

That effort costs money ergo it requires some sort of system of "taxation" i.e. compulsory payment to avoid the "free rider" problem.

TW, yes, it's a kind of LVT, great, but we don't know how much it is per acre. That £ might be some unindexed figure from 1906 or something.

PaulC, this whole "tragedy of the commons" is a pretty useless theory which people use as an excuse to explain away more or less anything.

Lola said...

MW "There is no invisible hand with landownership". Interesting observation. I sympathise with it, but I don't think it is quite right, or perhaps incomplete. That is the 'invisible hand' propels everything, and as a consequence propels land values as a consequence of production and 'location of industry'. Agreeing to organise drainage was originally an indidual pursuit and laws were evolved to protect property rights of those up and down stream. Eventually this got to complicated and it was decided that a single management system was better.
In other words the development was driven by the invisible hand, but at some point it becomes more convenient to have a central authority which as a consequence solves the free rider issue.
Or possibly not...

Lola said...

MW "There is no invisible hand with landownership". Interesting observation. I sympathise with it, but I don't think it is quite right, or perhaps incomplete. That is the 'invisible hand' propels everything, and as a consequence propels land values as a consequence of production and 'location of industry'. Agreeing to organise drainage was originally an indidual pursuit and laws were evolved to protect property rights of those up and down stream. Eventually this got to complicated and it was decided that a single management system was better.
In other words the development was driven by the invisible hand, but at some point it becomes more convenient to have a central authority which as a consequence solves the free rider issue.
Or possibly not...

Mark Wadsworth said...

L, this was just one example, see also "retail mix control", or the huge number of vacant buildings, from the poshest to the cheapest areas.

If there were an Invisible Hand, they would all be occupied.

Will Williams said...

Tim Worstall's blog:
http://www.timworstall.com/

Lola said...

MW - I am not sure that they would all be occupied. Many would be in a transitional phase in change of use, or waiting as the market found the 'right' price to buy or rent. Yes, I know that much property is screwed by the tax system that LVT would sort, but I am not sure that vacant buildings indicate the absence of the invisible hand.

Ian B said...

It's a secondary point, but the demise of the "traditional high street" is because it's shit.

Big shops have more types of stuff, cheaper, due to more floor space and supply chain savings. The first factor is really important. Yesterday I fought through the gales to get to the big Sainsburys at Sixfields rather than get a bus to the small one in the town centre because its range is much better; that's two Sainsburys being compared, the high street one vs the out of town one.

High streets were a shopping model predicated on houswives dicking around all day with a shopping basket, not rapid efficient replenishment of the modern household food store. Same goes for everything else. The High Street is just a dead paradigm, unless you want a pound shop. This is the 21st century, not Trumpton.

Mark Wadsworth said...

L, no they would not all be occupied. It is a question of degree.

Proper letting agencies can get flats re-let within a week or two. So these would never show up in the stat's.

There are about one million homes bought/sold every year, and most people leave their old home and move into the new one on the same day.

Even if there was somehow a gap of one month between you moving out and the purchaser moving in, that would mean an average of one million x 1/12 = 80,000 empty homes.

Those two together don't add up to one million or so empties.

The following caseshprobably make up the bulk of vacant homes, i.e. where no sort of market discipline applies:
- holiday/second homes
- mansions in central London
- Prescott's pathfinder nonsense
- local councils starting some new project, buying up homes and then abandoning the project half way through.

Mark Wadsworth said...

IB: "It's a secondary point, but the demise of the "traditional high street" is because it's shit."

A good point somewhat over-forcefully made.

As you say, the big supermarket is better than the little shops. Why do the little shops stay little and why is the new Sainsbury's out of town?

It's because the land in the town centre is divided up into lots of plots all owned by different people, and the only place where supermarkets or shopping centres can get a big enough patch of land to do the job properly is out of town.

Which was the whole point of the post.

DBC Reed said...

The traditional high street is shit now because its been hollowed out by big out-of-town supermarkets on cheap land as MW says. Sixfields,Weston Favell,Mereway: all points of the out-of-town compass.The traditional High Street was based on Resale Price Maintenance,a freely entered into contract between manufacturer and shop by which the shop agreed not to sell below the recommended price or else the manufacturer would stop selling to them .RPM has been legalised in the US by the Leegin Creative Leather case. It is strictly banned in the EU but our traditional pattern of retail was based on it.
There was nothing wrong with High Street shops which could be of some size. I worked in several traditional Sainsbury's stores which had two counters down the length and a wide tile space between which I had to clean at close of play ( I started at 7.30 am).The counters were served by dumb waiters from the prep room below where the Morlocks like us had to cut cheese into blocks ,chop up rabbits etc all of which were by modern standards incredibly fresh.As well us there were Macfisheries selling fresh wet fish and several huge shoe shops which ,as you know, were bought up by Charles Clore then sold and leased back (if they were lucky).Also socialist oddities like the Gas Showroom (very useful) and the Electricity Showroom (less so).Delivery by boys on bikes was going out in my day but women used to scoot round in their lunch hours to pick up provisions.People worked in town centres in those days.
Miles better than going to the supermarket which is expensive because you have to have a car, while queues in supermarkets round here are enormous and you can also spend loads of time looking for things .
It is strange that the Invisible Hand Gang which you would think would favour small shops is instead besotted by the retail cartel.

Mark Wadsworth said...

DBC, again, you are getting off the point that splitting land up between lots of small owners leads to a worse outcome than having one person or organisation own the whole lot.

You can do what you like with planning reg's and RPM, that's just the way it is.

LVT would ameliorate this to some extent, but ultimately it can only be fixed if lots of small landowners on one "High Street" agree to transfer al their little bits into one company (which they can own in their respective shares) and then get a proper manager in to look at the larger site which is now available and make the best of it - which will probably be a big supermarket, a big car park and then lots of smaller units rented out to the "remora".

They would always end up better by doing so, and being forced to realise that running a loss making shop is never as good as collecting a positive sum in rent from the new tenants.

Those who run a genuinely successful business will win on both fronts.

Bayard said...

I'm sure I've made this point before, but years ago, when I was on the Town Council of the town I lived in, there was a major supermarket, I forget which, who wanted to build on a site just behind the main shopping street. The company engaged a local estate agent to go round all the existing businesses and ask them if they were for or against the proposal. Much to his surprise, all but two were for it, because they realise exactly what Mark has postulated above: the supermarket would bring in the shoppers and provide parking and the shoppers would then patronise the other shops before they went home. Nothing happened for ten years because the council got its knickers in a permanent twist about parking and space therefor.

Anyway I disagree with Ian B: all the High Street shops that compete with the supermarkets have long since gone, save the odd deli or butcher which survive on the patronage of people who shop there because they offer a better product and are not the supermarket. I am not sure that RPM would have saved them, either. Supermarkets can offer the unbeatable combination of parking and late opening hours, never mind the prices. The "traditional" High St has declined along with the non-working housewife: what's the use of a shop that's only open when you are at work?

Mark Wadsworth said...

B, no, you have never mentioned that before and I am pleasantly surprised that all but two shop keepers were that enlightened.

But I was looking at the issue at the level of "maximising the rental value of all the land in the vicinity" and not the supposed self-interest of individual owner-occupiers.

Had all the canvassed shop keepers been tenants, and had the estate agent canvassed their landlords instead, surely they would all have voted for the supermarket? (draws the crowds, provides parking etc).

Derek said...

The question of when the Invisible Hand produces the best outcome and when it doesn't is an interesting one. There must be situations where it works and situations where it doesn't Definitely worth looking into.

Mark Wadsworth said...

D, let's not over-intellectualise this.

We have the perfectly workable concepts of "public goods", "the invisible hand", "the nation state", "free markets", "land ownership" and "monopolies", it's a question of knowing which one applies where.

Bayard said...

Mark, actually, quite a few shops were/are tenants. The agent would have known as he was agent for most of the landlords in the town. I wonder if he asked them? Mind you, it was them who were probably behind getting the supermarket in in the first place, come to think of it. (Small market town, landlords all locals, went to school together, in local Rotary Club, Chamber of Commerce, Freemason's Lodge (yes there was one) etc.)

DBC Reed said...

In Bayard's case the supermarket was proposing to move next to the High Street (Abington St) and might have attracted some shoppers locally: in Northampton, which Ian B is describing, the big supermarkets are on the outskirts and the "High Street" is groggy.
I am struggling to get my head round MW's concept of No Invisible Hand in the property market. I don't believe in the Invisible Hand to start with which in Northampton appears to mean everywhere you need to shop is miles away ( shopping trips are on average ten miles a time).Meanwhile on holiday I can walk to get a paper or to a huge independent department store ,afterwards, much deserved walk to a waterside hotel bar (where I once saw a luxury cruiser marketed by a firm called LOLA also a hommage to The Life Aquatic ).
RPM stopped small shops fucking each other over because they could not undercut each other on the price of the same branded goods and because the manufacturers had a tied relationship with their shopkeepers which cut both ways. Manufacturers had a rock solid base for specialist distribution and nothing to fear from general manufacturers loss leading on their specialty (say,rather wildly, toasters)while cross subsidising on other goods.Laissez faire it aint ( finished in UK by Joe Chamberlain in 1870's). Competition will only break out by force and under very tightly controlled and unnatural conditions.

Bayard said...

DBCR, whilst not wishing to dispute that RPM would have helped to slow the decline of the High St, I still think that the two major factors are the decline in the non-working housewife as a species and the reduction in the number of people actually living in our town centres. The latter is mainly down to chains buying up town centre shops and taking out the side stairs to the upper floors for extra retail space and houses in the "retail district" being converted into shops, which was still being done in the '80s. If you have to get in your car to go to the shops, you won't mind driving to the nearest out-of-town supermarket half so much as if the alternative is to nip round the corner on foot.

Mark Wadsworth said...

DBC: "I don't believe in the Invisible Hand to start with which in Northampton appears to mean everywhere you need to shop is miles away ( shopping trips are on average ten miles a time)."

Well clearly there is such a thing as the IH or the economy would not function at all.

But there is no IH in the land market, or else supermarkets would be in town centres.

Let's not bicker about how the continentals manage it. The point is, if it wasn't all nicely laid out, you wouldn't go there on holiday.

Ian B said...

Why is the natural place for a supermarket in a town centre? Most people visiting a supermarket are just visiting the supermarket, they're not pottering around doing "browsing", they just want to buy two weeks' food, stuff it in the boot and go home. Hence, it doesn't need to be in a town centre near a haberdashers and a model railways shop, or what have you.

There seems to be a misunderstanding here (possibly) that a shop in the centre is a shorter journey than a shop somewhere else. Not so.

Think of a circle. Or draw one, if you have a poor visual imagination. Any point within the circle is the same average distance from all the other points in the circle. A shop on the perimeter of the circular town will have the same average shopping distance for all customers as one in the middle.

This is for the same reason that a body inside a spherical massive shell experiences a net zero gravitational pull. Sort of.

The "town centre" was just a thing of groping many shops together. Once they don't need to be grouped, you can stick them anywhere in the town. On the perimeter being good, because of the roads, available land, etc.

Mark Wadsworth said...

IB: "Why is the natural place for a supermarket in a town centre?"

Because all things being equal, that is where supermarket owners would like to put them, i.e. where they get the most shoppers (assuming there is adequate parking etc). If a large site comes up in a town centre, supermarkets are delighted if they can get it.

"Any point within the circle is the same average distance from all the other points in the circle."

No, the point in the centre has the shortest average distance. But it is not absolute distance which matters that much, it is journey time, which includes finding a parking space.

DBC Reed said...

@MW & IB
An exchange of e-mails at 7.30 in the morning!
I'm afraid IB's geometry is up the pole: a ring road such as in Northampton (where he lives) linking Weston Favell, Riverside, Mereway, Sixfields and sketchily Waitrose is on a circumference which is 3.147 x the diameter of the town: the most direct way right across town in the classical case would be on a diameter; journeys into the town centre would be on a radius, or fraction of.Centralisation would be the most efficient logistically.. if everybody was on foot or public transport.However, with the introduction into the equation of supermarkets and the cars necessary to shop at them all this natural use of land goes out of the window.
Ian B is right about modern Northampton: the shopping is arranged on a circumference (which is why I have to motor ten miles a day) but this is a planned response to a brutal political,social engineering , decision i.e. to knock the traditional RPM on the head ,done by Edward Heath to get into the EU.
From Bartlett's "History of Post War Britain"(1977)"This was done ...very much at the behest of Edward Heath, the Secretary of State for Industry, despite opposition from within the party and despite its unpopularity among small traders ,one of the traditional bastions of the Conservatives...it encouraged and was assisted by the spread of supermarkets." Believe me (I am very old) there were no out-of-town supermarkets in 1964 when RPM was abolished (during Home's interregnum.)
No workings of Invisible Hand whatsoever: supermarkets did not evolve naturally (the word that Adam Smith uses about fifty times on the first page of W.o.N).

The Stigler said...

DBC Reed,

No workings of Invisible Hand whatsoever: supermarkets did not evolve naturally (the word that Adam Smith uses about fifty times on the first page of W.o.N).

RPM was not really part of it anyway. Supermarkets came about because of fridges, cars and washing machines and expanded further as freezers and microwave ovens arrived. If we'd kept RPM then supermarkets would have just sold own brand goods competitively.

DBC Reed said...

@TS
Would have thought that fridges became more popular after the onset of supermarket shopping: after people started to do the shop for a whole week; not really necessary before.Packaging also became a lot more durable with stuff being stored at home.Previously the packing, in greaseproof paper etc,was just to get stuff home, where it might rest on a marble slab in a cool
larder or meat safe then be consumed pretty pronto.
Cannot see how washing machines affected shopping; just freed up time to go down the shops.
Cars are another matter: people could obviously go shopping in supermarkets more easily.But except in households where women had gone to work after the children had gone to school, most blokes of whatever class would have looked gone out at the suggestion of driving to go shopping at the weekend.

Mark Wadsworth said...

DBC, fridges and supermarkets came together, that's the IH at work. one without the other is pointless, you need both :-)

And of course supermarkets arose "naturally". You cannot claim that RPM was somehow the natural order of things, that was a government regulation.

As a separate issue, if there's one reason to dislike supermarkets (especially TESCO), it is their PROPERTY divisions, who go round gaming the planning system at everybody else's expense - because that is where the IH does NOT work and where SENSIBLE government intervention is required.

Finally, my Dad was an outrageous chauvinist, but even he was perfectly happy to drive to the supermarket (my Mum never had a driving licence).

Kj said...

MW: in defense of DBC, the existence of RPM is a contract, and not allowed currently because of competition law. So you cannot say that RPM is government regulation.
That being said, TS makes an excellent point, it´s jus a matter of producing own brands or finding another supplier.

Mark Wadsworth said...

Kj, DBC, how can it be a contract?

Let's agree that the manufacturer/wholesaler can agree, by private contract, a fixed retail price with all retailers.

What happens if...

a) The retailer ends up with unsold stock at the end of the season? Does the wholesaler have to take them back?

b) A powerful retail cartel (i.e. supermarkets) tells the manufacturer/wholesaler than in future, they'd like the retail price to be dropped a bit?

c) The powerful cartel sets the retail price so low that small retailers, with their high overheads, cannot possibly make a profit?

Shiney Mart can tell you what would happen.

d) TS hits the nail on the head anyway.

e) DBC and IB bemoan the presence of supermarkets within easy travel distance. And supermarkets would love to be nearer where their shoppers are. Why doesn't this happen?

Returning to the original post, it's because there is no IH in the land market.

Kj said...

MW: because it is a contract. You called it government intervention, and it isn´t, it´a contract. To the specifics of it, I only know of the norwegian exemption for publishers, where the common arrangement is to specify a date from release of a title, to when the retailer is allowed to reduce the price, which is known as the "mammoth sale", and you also have agreements on the return/destruction of books.
In the US, where this is legal, it´s been common enough to be a source of a congress hearing, and I quote from this article:
Old-line manufacturers and retailers are threatened by the Internet, where innovative small companies are using technology to drive down prices, Cohen said. But with the Leegin decision, many manufacturers are hunting down online retailers selling below set prices and cutting off their supplies, Cohen said.

"There is evidence that small and midsized Internet retailers are the primary target of aggressive RPM policies," Cohen said. "Many eBay sellers have been targeted by manufacturers and large retail partners with various tactics to take down their listings and discredit their sales."


To how this affects supermarkets, I have no opinion. I agree with you, there is no IH in land etc. But I would add that planning is also a reason. When a major retailer applied to build a supermarket/multi-retailer warehouse in the center of my town, had the land, had plans for all the parking it needed, required very little in the way of infrastructure improvement, the council retards said no.

Mark Wadsworth said...

Kj: "with the Leegin decision, many manufacturers are hunting down online retailers selling below set prices and cutting off their supplies, Cohen said"

If I am a manufacturer, I can choose who I sell to. If I don't want to sell to online retailers, then I don't have to. Or I can sell them online myself.

I didn't express myself very well. Of course a contract is a contract. And people can contract how they like, the government is not stopping them, the government is not interfering.

Yes, planning is another reason. But councils don't refuse planning simply because they are nasty or stupid, councils refuse planning because that's what other landowners want.

That is as damaging to the economy as if the council could stop the supermarket from selling meat because the butcher's shop down the road complains. That is like every new business having to get permission from all existing businesses before it can start, in which case there would never be any new businesses.

Kj said...


If I am a manufacturer, I can choose who I sell to. If I don't want to sell to online retailers, then I don't have to. Or I can sell them online myself.

I didn't express myself very well. Of course a contract is a contract. And people can contract how they like, the government is not stopping them, the government is not interfering.


Yes they are. You can choose who to sell to, but any agreement that is considered "price fixing" from manufacturer to the retail level is prohibited. So again, RPM is a contract provision, not government interference. I don´t have much of an opinion on the specifics of how that would work out, but I can only note that where it is legal, in the US, it is used enough to annoy the likes of eBay, hence not insignificant.


Yes, planning is another reason. But councils don't refuse planning simply because they are nasty or stupid, councils refuse planning because that's what other landowners want.


Well quite often they do actually. Ignoring brown envelopes, councils often take it upon them to plan what they believe is "the right" amount/type of businesses in the right place, which is done sometimes as a service to landowners, and sometime in direct opposition to said landowners, and yes, they are sometimes nasty, stupid and work against the IH for no apparent reason.

The Stigler said...

Mark/DBC,

DBC, fridges and supermarkets came together, that's the IH at work. one without the other is pointless, you need both :-)

Fridges and washing machines liberated women from having to be at home every day. And as that started to happen, so supermarkets started to appear that saved time.

And as more and more home tech appeared like freezers and microwaves, so this grew.

Mark Wadsworth said...

Kj, fair point, but the IH will always find a way. If I sell my goods to somebody who sells them at what I consider to be too thin a margin (why would I care), then I can simply stop selling to them.

Problem is that the supermarket cartel has too much buying power - great for customers, not so good for suppliers.

TS, I grew up in the 1960s/1970s and then it was already perfectly normal to do the big weekly shop by car at one of various supermarkets within ten minutes drive of our house, "the high street" had already started dying out even then.

But as you say, fridges and freezers were perfectly affordable to all by then.

Kj said...


Problem is that the supermarket cartel has too much buying power - great for customers, not so good for suppliers.


True, which is why the RPM conflict in the US is centered around online retailing of other goods than food, which is not a cartel, despite what some people conjure up about Amazon and the like. And it (not banning RPM), would probably not affect supermarkets that much.

DBC Reed said...

@MW "If I sell my goods to somebody who sells then at what I consider to be too thin a margin I can simply stop selling to them."
Not in the EU you can't : in the USA you can thanks to Leegin Creative Leather who did this and under the previous legislation got taken to court (by PSKS dba Kays Kloset).There is a legal state of flux in China with some rulings going against RPM some for.