Markets and Morality

Eric, Brad and I have been having quite a lively exchange (see here and here and here) over the issue of monopolies, the market economy, and morality.

While we’ve covered several topics, one that keeps recurring is the question of whether it is appropriate to think in terms of “right” and “wrong” when it comes to evaluating the outcome of the operating of a free market economy. As I’ve said in the comments to all three of these posts, I think the answer to that question is no.

As Mises and Hayek taught us, the free market is, in reality, nothing more than a reflection of the decisions made on a daily basis by untold numbers of consumers and business people reacting to factors ranging from price to taste to whatever happens to be in fashion or popular at a given point in time. As such, I think its entirely mistaken to speak of market outcomes in terms of whether they are “good” or “bad”, “right” or “wrong”, they just *are*. They are not moral judgments, they don’t reflect artistic merit (the fact that Britney Spears outsells Diana Krall doesn’t mean she’s more talented), and they don’t necessarily mean that one product is objectively suprior to another (because sometimes an obviously inferior product ends up beating superior competitors in the marketplace). Assuming that they either can or do reflect any of these things leads inevitably to the idea that its possible for one person or group to know better than consumers and that something must be done to fix the “wrong” choices that consumers make.

Much of our discussion today has centered around Microsoft and its allegedly negative impact on the market for operating systems. But do we really know this to be true ? It would be impossible for any one of us to second guess the market bercause there isn’t any way we can know that things would be better if Microsoft had “played fair” (although I don’t concede the argument that they’ve done anything inherently unfair). A market economy is made up of hundreds of millions of players, each of whom acts based on the information available to them. To say that one person, or group of people, knows better than the people who make up the economy is to adopt the same premises as the central planners. The reason that the free market economy works, though, is because it recognizes that no single person or group can know enough to control the economy in any rational sense.

Personally, I have no idea if we’d all be better off if Microsoft wasn’t the dominant player in the OS market. While there might be more choices, a large number of choices could arguably have impeded the adoption of the PC as a mass market commodity. Furthermore, there are alot of reasons to believe that if Windows didn’t exist, someone would have to create it, or at least some kind of standard operating system that vendors, consumers, and software writers could work with. Imagine what the auto industry would be like if every manufacturer’s cars needed fundamentally different types of fuel. The likelihood that anyone of them would acheive “critical mass” is unlikely, unless one of them came to dominate the others for some reason or another and became the de facto standard. That’s precisely what happened in the OS market.

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  • Brad Warbiany

    It’s tough to look back at history and say “well, if someone had done this, the result would have been that“.

    The simple fact is that Microsoft was a leader in two ways, when it came to the growth of the PC. First, they built incredible market power around Windows, by making the computer both accessible to the regular user and powerful enough for business to make use of it. Whether what they did was optimal is a big debate, and whether or not either of us agree with Eric is truly immaterial.

    My point through this whole ordeal is that Microsoft dominated Phase I: The Acceptance of the PC. They have position in the market to dominate Phase II, if they make the right decisions, but it’s by no means assured. The past is important, if for no other reason than to understand how the current situation came about, but without a true coercive monopoly, the future is still wide open.

  • Kay

    I believe are that companies such as Microsoft make decisions, generally, based on what the market *demands* and stay with those types of decisions until their customers make it plain that they’re no longer effective – at which point, if they’re really paying attention to their consumer base, they’ll at least attempt to make corrections to stay at the top of the heap. So, rather than railing against companies like these and their monopolies, the best *libertarian* response is to find someone who does a better job.

    Its a personal pet peeve that many people get stuck in the “we’ve always done it this way” pattern and never try to look for a better or different way to try to improve – but that is not the fault (for example) of Microsoft – but of the consumer who allows themselves to be lulled into accepting a poor product.

  • Doug


    I agree with you. People seem to forget sometimes that, for all its so-called monopoly power, Microsoft has had a lot of duds over the years. Does anyone remember Bob ?

    There are many technology purists who will say that Bill Gates really didn’t create anything new when he founded Microsoft. After all, they say, MS-DOS was really just a renamed version of something that someone else had created. Even if this is true, this criticism ignores the fact that part of what it takes to be successful in business is business accumen and good marketing — and I don’t think there’s anyone who can argue with the assertion that Microsoft has been successful in both of these areas.

    Additionally, its not Bill’s fault that he succeeded. Heck, half the reason he did is because he competitors made alot of stupid mistakes. Apple decided to make the Mac and its operating system proprietary rather than licensing it out, had they chosen the second option then computer makers like Dell might arguably have had another alternative to choose from when it came to operating systems and, just maybe, Apple would be more than just a niche product in the computer world (and, on an unrelated note, there are those who say that Steve Jobs is making the same mistake with ITunes and the IPod). Another example: it took Corel almost 2 years to come up with a version of Wordperfect that was compatible with Windows 95. By then, Word had gobbled up so much of its market share that it was no question who the winner would be in the longer run. Thus, MS Office has become the dominant office suite.

    In some sense, its no wonder that Microsoft has been as successful as it has been.

  • Eric

    Okay guys, there’s a couple of strawmen in the debate. And, a couple of fallacies about how Microsoft came to dominate the PC market. I don’t want to rehash it all.

    I do, however, want to ask a couple of questions.

    1. It is a premise of classic liberal (I’m done using the term libertarian, which appears to be equated with anarcho-syndicalism these days) philosophy that coercion is bad and lack of competition is bad. How is it that you are willing to accept a lack of competition in one market as “just the way it is” but not in another market?

    2. I’m curious how you would feel if it was shown that government regulation and intervention helped to create a monopoly? Would it then be bad?

  • Quincy

    I’m sorry I made it late to this debate. Maybe I’m in the minority here, but I personally see Microsoft’s monopoly power on very thin ice. In terms of what the power users are doing, Internet Explorer is dead, and its starting to die with non-power users as well. Windows Vista is generating almost no buzz with its release coming this year, in contrast to the release of Windows XP which seemed to me to be very anticipated by users. (Of course, most users were using Win98/ME, so any upgrade would have been anticipated.)

    Personally, I don’t see any software company in the driver’s seat in the OS Space at the moment. If anyone is in a position to influence things, it’s Intel. If, and knowing Steve Jobs it’s not a great if, Intel were to convince Apple to do something like a clone PC licensing program like they currently do with iPod accessories, it would, I think, debase any monopoly power that MS had. Imagine, if you will, being able to buy a Dell CoreDuo machine with your choice of Windows Vista and OS X. I think, all else being equal, consumers would flock to OS X.

    What do you all think?

  • Eric

    Actually, I agree with you Quincy, but with a somewhat different approach. I think one of the marginal OEM’s, eMachines perhaps, is going to decide that Microsoft no longer has enough power to hold them to Windows and that the increased margin of a “free” operating system is attractive. Sometime soon, the first OEM is going to come to market with Linux on their machines and it’s going to be a whole new ballgame.

    In 1995, that wasn’t possible because Linux wasn’t competitive and MS, Sun, Apple, etc. were all trying to make money off of artificial scarcity. It should be noted that MS “won” in the 1990’s as much through the greed of their competitors as through things they did themselves. I know a lot of folks celebrate MS leaders as great businessmen, but if you look at the OS and OEM history, that really isn’t as true as we would like it to be.

  • Kay

    Eric, I just think that sometimes it takes time for competition to naturally develop – it takes time for the “better mousetrap” to be proven. That doesn’t mean that competition doesn’t exist, it just means it hasn’t yet reached the critical mass point where it is recognized as being competition.

    In a *perfect* world, I don’t think that government should be involved – either in promoting a private business through deregulation or in helping to create a monopoly.

  • Eric

    Kay, in a free market, competition will develop because there is otherwise a vacuum. When competition does not develop, it is an indication that the market has been distorted. As for the “perfect” world, you will never get to it, economically anyhow, if the government continues to distort the markets.

  • Kay

    Eric –

    After going back and reading your comments, I don’t think you and I really disagree – I think we just see the competition/coercion thing a bit differently. We agree that governmental regulations are generally a bad thing. You’ve been at this business a much longer time than I, for sure, and so perhaps your insight is a bit clearer – but I still believe that ultimately, we do have a choice. While I managed to work hard and get all the bugs worked out of my first HP proprietary computer 10 years ago, that was also my best teacher – and it taught me that I never wanted to deal with that kinda stuff again. I’m still learning, but *I* am making my choices now as to what components I’ll put into my computer and what programs I’ll run. And whether it’s MS, McAfee, Norton, AOL, Earthlink or whatever – if it seems to dig too much into my setup and cause me grief, it’ll get dumped as fast as yesterday’s news. But, that’s just me. I’m a control freak and not content to let anybody make decisions for me, and unfortunately, I know I’m in the minority – and folks like my mom and dad are at the mercy of whatever is most popular mainly because they just don’t have the energy to take the time to learn what I’ve been learning.

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  • Quincy

    Eric –

    You might have a point there, especially with the rather hefty system requirements for Vista, especially in the graphics area. The cool new Aero UI, which so far is the biggest selling point (if one could call it that) will almost certainly need a discrete graphics card to run, and a recent one at that. So no integrated graphics for the new UI, which means that most, if not all of eMachines’ line will seem obsolete to users right out of the box.

    Of course, all of OS X’s goodies would put PC makers in the same spot as Vista, so eMachines or another vendor could break ranks with Microsoft and go with a customized, Windows-like Linux distribution.

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