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The great thing about competitive markets is not that marginal utility sets prices, but that rivalry among sellers drives prices below the level that approximates many people’s marginal utility. This produces a consumer surplus. (How far below is governed by producers’ subjective opportunity costs, including workers’ preference for leisure.) We all have bought things at a price below that which we were prepared to pay. Ralph Hood put it nicely when discussing the falling price of electronic calculators: “[T]echnology allowed the price to drop. Competition made it drop.” In a manner of speaking, competition socializes consumer surplus.
On the other hand, in the absence of competition a coercive monopolist is able to charge more than in a freed market, capturing some of the surplus that would have gone to consumers. That’s a form of exploitation via government privilege. (Eugen Böhm-Bawerk saw the possibility of similar exploitation of workers by employers sheltered from competition.)
The counterintuitive conclusion, as Carson puts it, is this: “A person can be better off from an exchange, and still be exploited.”
We should keep this in mind the next time we’re tempted to defend a state of affairs in the corporate state or, say, sweatshops in an authoritarian third-world country. Before we say, “The exchange was voluntary and therefore both mutually beneficial and legitimate,” we should make sure the larger context satisfies libertarian standards of legitimacy by asking this empirical question: Did government privilege play a significant role in creating the circumstances in which the exchange takes place?
Sheldon Richman is editor of The Freeman, where this article originally appeared.