Friday, March 6, 2015

How Should a Libertarian Price a Product or Service in a Government Cartelized Industry?

A Target Liberty reader emails:
"Government granted monopolies bug the hell out of me. Before I first came across libertarianism via Lew Rockwell I was in law school and now I’m a part of the machine. Now I practice estate planning and generally help people avoid capital gains and estate taxes. I like what I do and my clients love me. However, I’ve recently undertaken “death work” within estate law. That means trust administration and probate. Trust administration is an hourly gig and is pretty straight forward. Probate offers a pretty high set of “statutory fees” which are a percentage of the gross estate.

Every attorney I know charges these statutory fees which easily reach into the tens of thousands of dollars. I’m a member of a monopoly and that’s where fees are. I feel uncertain about charging this amount, but the logical conclusion of this is that I should charge less for my normal estate plan fee because even that’s pretty high if we had a free market. I don’t subscribe to the Labor Theory of Value so it’s not that I think I should get paid less because work doesn’t take me long, but I’m torn because there is substantially less competition in my field because of government intervention. I charge less than most specialist (with the exception of probate), but it’s still something I think about. What are your thoughts?"

My reply:
Well first, from an ethical perspective, you must believe you are bringing value to the transaction. That is, after the transaction, are the people, who are seeking your advice better off than they were before you came into the picture?

In some technical areas, you are going to be able to answer this question better than your clients.

Assuming your advice passes the ethical test, there is generally not much you can do about current restrictions on competition. That unfortunately is mostly a given.

The only thing you can do is look at the supply and demand dynamics of the current situation. As a good businessman, there is nothing wrong with charging as much as the market will bare  (and the restrictions on competition are just a factor in limiting supply of the service you provide) . That said, you don't want to charge a price that will scare off future business  (Technically, we are talking here about the price elasticity of demand for your service), but that really should be your only consideration, as long as you are not actively promoting the setting up of government barriers to competition, and also factoring in how much time you want to work.

In other words, charge whatever you think will generate the most overall income.

There is one other possibility, and this depends more on the specifics of a given government cartel and the resources you have available to you to fight a government cartel, and that is to attempt to break the cartel, such as Uber is doing in the taxi cab sector.  However, I do not believe that it is required of a libertarian to attempt to break up a cartel. In many sectors, this would be extremely difficult to do. As long as a libertarian isn't actively supporting a cartel, I see no problem in operating in that sector and charging whatever rates are under the conditions of the cartel. 


  1. So he's got an issue with charging the market rate, because the market is distorted due to the existence of state-sponsored, vetted, and approved specialists, i.e., licensed professional, in this case, lawyers.

    This is the same with engineers and doctors. If you are a sole practitioner, the answer is simple; if you can make the numbers work, undercharge the market rate. Eventually, you'll make it up on volume of work performed, especially if it's not time-consuming work.

    1. It doesn't work that way for engineers. Most engineers do not go for PE licensing. Some do and very few areas require it. Only engineering in some highly government regulated areas do. And sometimes some people get annoyed if someone who doesn't have a PE license opens up a consulting business and names it the wrong way. Government even has programs to bring in more engineers from other countries to lower what we can earn in the market, license or not. Nothing stops these immigrants from getting a PE license either, they can take the test just like anyone else.

  2. The monopoly that exists due to education and license requirements by government is only part of the equation. Estate planning would hardly exist as a service if it weren't for the capital gains and estate taxes imposed by government. Since there are other areas of the law that are far less monopolistic, the fact that your reader chose this field shows he clearly supports (by his action) the barriers erected for his benefit. I struggled with this for years as I worked as a commercial banker. I soothed my conscience by teaching bankers through the Robert Morris Associates, the American Institute of Banking and local colleges that the Federal Reserve was a coercive institution that should be abolished. This did nothing for my career as a banker and I left banking to be a financial consultant helping borrowers deal with the banking monopoly. This was not a perfect solution but I felt better than working for the banks. As an attorney your reader could stay away from the artificial services created by government regulations and pursue contract law in a variety of industries or become a defense attorney for those prosecuted by the government for victimless crimes. I am no expert in law but there must be areas that are less advantaged by government regulations than Estate law. I do agree that there is no need to attack government cartels head on but there are still choices to be made.

  3. Brian you are wrong. Estate planning attorneys help us pay less taxes. So long as they do not actively support the monopoly (and hopefully support causes that undermine it like, and compulsory bar fees do not count), then they are doing good and moral work. If a prison gang takes over the yard, but some guy learns their arcane rules and can help limit the abuse they otherwise heap upon you, be grateful for that guy.

    Yes if you benefit from the monopoly you can become tempted to justify it. But you don't have to be. I know several libertarian lawyers, doctors, etc. and frankly it's a matter of degree that distinguishes these professions from other jobs as to monopoly power. Almost every job will have some regulation that acts as a barrier, even the minimum wage. All barriers create a narrower class eligible for a job or business than would otherwise exist, i.e. a monopoly.

    1. I agree that it is "...a matter of degree..." The greater the degree of benefit from coercion the greater role that profession plays in enabling the continuation of coercion. It may be a difficult decision but everyone has to make that choice for themselves. I will never be "grateful for the guy" for limiting abuse because he may in fact simply be making the abuse more tolerable. The fact is that the "job" would not exist if the bully were brought to justice. Try not to be an enabler of injustice.