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Subject Area: Political Theory

Competition, Property Rights, & the State - Leonard P. Liggio, Literature of Liberty, Summer 1982, vol. 5, No. 2 [1982]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Competition, Property Rights, & the State

Robert B. Ekelund, Jr. and Robert F. Hébert

  • Auburn University

“The Proto-History of Franchise Bidding.” Southern Economic Journal 48 (October 1981): 464–474.

The authors present a provisional historical analysis of franchise bidding (governmental granting to privileged parties of exclusive franchise for providing “public utilities” and “public goods” on the basis of competitive bids) as a way of untangling the distinct meanings of competition and the distinct institutional forms of property that give rise to these different meanings of competition. By clarifying the history of ideas concerning competition in franchise bidding, we will be better able to evaluate Harold Demsetz' and others' advocacy of franchise bidding. They view it as a substitute for a political commission's regulation of public utilities and a more efficient way of providing public goods. The historical analysis suggests, however, that franchise bidding, which is based on ultimate governmental control over what could be private property, merely substitutes one form of regulation for another.

Competition denotes two radically distinct notions of economic rivalry based on different structures of property rights. Private property rights gives rise to competition in Adam Smith's free market sense of allowing every seller an equal right to serve customers and allowing every buyer the freedom to choose goods from the seller he prefers. On the other hand, when the State (rather than private persons) is the lawful owner of the property right it franchises, it allows “competition” only in the sense of a contest among sellers to obtain an exclusive, monopoly right to serve buyers who have no right to choose their sellers.

Historically considered, these two opposed notions of competition were articulated, respectively, by Richard Cantillon and Bernard de Belidor. Cantillon's notion of competition centered on entrepreneurs who competed, in the framework of a free market and private property, to satisfy consumer demand at their own risk. Belidor inaugurated the “French System” of governmentally granted exclusive franchises to maximize state revenues as a form of rent seeking. In 1605, the French economist Vauban influenced Louis XIV and his minister Colbert to favor governmentally sponsored franchise bidding. Geographically the two opposed concepts of competition found their respective homes in England (politically and economically freer and more decentralized) and France.

The authors discuss the normative, philosophical background to the 18th-century differing doctrines of competition. The free market notion of competition posited the “natural identity of interests thesis” which maintained that egoistically motivated market participants harmonize their interest of their own accord through a spontaneous order which fuses individual and general interests. The more interventionist notion of competition denied a natural harmony of egoisms, and sought the involvement of the legislator to bring about “the artificial identification of interests.” Jeremy Bentham and Edwin Chadwick, who sought concentration of ownership and control of property rights in the hands of the central state to achieve harmony of interests, are the intellectual forerunners of Demsetz' espousal of governmentally sponsored franchise bidding.

Nineteenth-century theoretical extensions and refinements in franchise bidding are analyzed in the writings of Bentham, Chadwick, Mill, Sidwick, and Marshall. Finally, the pardoxical transformation of competition as a process (as understood in the Austrian tradition of Carl Menger) into the more recent neoclassical view of competition as a theoretical situation is discussed. Paradoxically, Demsetz casts his analysis of competitive franchise bidding in the static mold of orthodox, neoclassical theory.