Is "Bigger" Really "Better?" Libertarian Ruminations on the Economy of Scale

Unless you've been living under a rock, it should be obvious that human social organization in the Western world is increasingly being dominated by large-scale organizational structures. Examples are obvious and bountiful. Why is the financial world today controlled by a handful and large Wall Street banks that have grown to the point where they are "too big to fail," and why are small local banks struggling to stay in business? Why are a few large scale retailers like Amazon, Walmart, Home Depot, and Target, thriving while small local "mom and pop" stores are out of business? Why are individual schools getting larger and often bundled and "administrated" into large school districts or corporate entities? Why are small family-owned farms being usurped by large "factory farms" owned by huge corporations? And finally, why are Federal and State governments growing by leaps and bounds, while small local governments are struggling to remain solvent?

Orthodox economic theory says that the natural evolution of markets inevitably leads to dominance by a few large scale competitors and that the rise of oligopolies is a sign of economic maturity or progress. In other words, "Big is Good!" But what if orthodoxy is wrong? What if our current state of social organization is actually a malaise? What if the "bigger is better" thesis is actually a well-disguised ideology that has created large scale social structures that are really "too big to survive?" In short: What if "smaller is better?"

For the sake of argument, let's assume that most of what Adam Smith identified as the basics of free market competition is more-or-less accurate. Namely, that economic activity involves competition between buyers, between sellers, and between buyers and sellers. And that all competition takes place on two axis: quality and price. The quality of a good or service is determined by the free choices made by the buyers and sellers in the form of a contract. The price refers to what the buyer is willing to pay for it, and what the seller is willing to accept. The "Holy Grail" of economic competition is to provide high quality goods or services at the lowest price. The defenders of the "bigger is better" thesis say that larger organizations naturally benefit from "economy of scale" because larger organizations are more innovative and efficient than small organizations, and therefore can produce higher quality products and services at a lower price. Thus, it seems as though the "free market" leads inevitably to dominance by a few large scale organizations, or oligarchy. The problem with all this is that "bigger is better" contradicts almost everyone's "real world" experience with large-scale, centralized, bureaucratic social structures.

I currently teach at a small liberal arts college, but I have also taught at a major state university. Most small private liberal arts colleges are now "out of business" while the larger ones are thriving. Orthodoxy says that large universities benefit from "economy of scale" and therefore are more innovative, efficient, and therefore less costly. Of course anyone that ever attended or taught at a major university will readily question all three of those statements. How can a major university provide a superior education if most of the courses are taught by graduate students and adjuncts? If large universities are indeed "better" then why are the retention rates of large universities so dismal in comparison to small colleges? Admittedly, the issue is much more complex than this, but the question remains: "Is bigger really better?"

Libertarians like myself argue that the rise of large scale corporations are often the product of "crony capitalism" and not "free market capitalism." Thus, governments drive small organizations into extinction by: subsidizing the costs of large organizations, issuing expensive regulations that small organizations cannot afford, and via tax policy. In my next blog, I'll explore the coevolution of "big government" and "big corporations" and the difference between "crony capitalism" and "free market capitalism." I will argue that, contrary to what orthodoxy says, with few exceptions, in the absence of large scale government intervention, "smaller is almost always better."            

The Fixation of Belief: The Method of Science

So far, Peirce has identified three inferior methods that we all use to fixate our beliefs: authority, tenacity, a priori. He then argues that there is one method that is more likely to settle our opinions: the method of science.

First of all, Peirce is an epistemological realist, which means that he believes that there is something out there called reality whose nature remains constant relative to our beliefs, and that truth and falsity relate to that external reality. In other words, at least some of our individual and/or collective beliefs are true and others are false, whether we like it or not. Now, Peirce realizes that many philosophers in his time rejected realism and that it's impossible to "prove" that the real world exists. His argument is that the process of inquiry, however, can provide us with some guidance. The fact of the matter is that the overwheming majority of individuals and collectives believe that there is a real world (of some kind), and therefore, we do not doubt that it exists. A few philosophers doubt it, but so what? The pragmatic (common-sense) truth of the matter is that we all act based on our beliefs, unless that belief is in fact doubted. Doubt cannot be turned on and off. It's something that naturally arises, whether we like it or not! Therefore, Peirce argues that we are entitled to believe in a real world, at least until we actually doubt it.

So what is the "Method of Science?" Well, it's nothing more than the "process of elimination," or "trial and error." If something "works" we keep it! If it "doesn't work" we don't keep it. In short, Peirce is proposing an evolutionary epistemology, whereby Truth and Falsity are sorted out by the process of inquiry over time. Methodologically, Peirce argues that human knowledge advances based on evolution, especially variation and selection. Over time, our individual and collective bodies of belief evolve by weeding out the unfit. Later philosophers called this process "creative destruction." Hence, nature "creatively destroyed" dinosaurs, buggy whips, the geocentric map of the universe. Within the realm of belief, the process of inquiry requires that we willingly expose our beliefs to the falsification process, which implies avoiding the methods of tenacity, authority, and a priori. We can't know for certain what's true, but we can know what's false.

What's important here is that Peirce observes that we do (in fact) employ those inferior methods, however, we must deliberately fight that natural impulse. As Thomas Kuhn later observed, scientific theories (beliefs) are often willfully protected from the forces of creative destruction by self-interested scientists, scientific organizations, and governments that have invested their time, effort, and resources in maintaining the status quo. In short, there is a sociology of knowledge that often works against scientific human inquiry. Peirce also argued that scientific knowledge is highly fallible (his epistemological doctrine of fallibilism) and that we ought to guard against the rising tide of scientific positivism.

How many of our cultural beliefs are overdue for creative destruction but remain intact because they have been propped up by sociopolitical power structures?  Libertarians argue that socialism is long overdue for creative destruction.  I would add, that I seriously doubt that the Cincinnati Bengals will make it to the playoffs this year.                  

The Fixation of Belief: The A Priori Method

The "A Priori Method" of belief fixation is based on the idea that the human mind (or brain) has direct access the a body of knowledge prior to experience. Thus, if you want to know the Truth all you have to do is think real hard about it and you instantly ascertain "know" the Truth. As Peirce suggests, there are two problems here: 1.) There is very little agreement among philosophers in terms of a list of universally accepted a priori empirical truths. 2.) When we introspect our consciousness, we are actually looking in at relative culturally-based truths that are usually based on authority.

However, Peirce is not as hostile to the A Priori Method as one might think. In his other writings, he acknowledges that when faced with an enormously complex question (like the structure of DNA) humans have an uncanny ability to guess the right answer and that hypotheses often originate as feelings. In fact, Crick and Watson literally guessed the double-helical structure of DNA out of thin air! In fact many scientific theories "emerge" out of dream states. What's important here is that Peirce differentiates between the process of generating theories (intuition or feeling) and the process of determining whether those intuitions are, in fact, True or False. Peirce insists that although we often guess right, we still cannot rely solely on authority or a priori intuition. Truth, Peirce argues, has experimental consequences. That is, if a theory is True it should enable you to either predict or control that phenomena. Although many a priori theories generate highly plausible, psychologically pleasing explanations, Truth is ultimately "Pragmatic." As William James later observed Truth must ultimately exhibit "cash value." Just because the double helical structure of DNA originated a priori, it was not "True" until it's "cash value" was established in the laboratory. And of course, today the "cash value" of their discovery continue to roll in, as illustrated by genetic testing and genetic therapy.

Another point worth mentioning here is that Peirce did not believe that scientific theories could ever be finally verified in the laboratory. Why? Because of David Hume's "problem of induction," which observes that, eventually, future experiments (observations) almost always falsify previous previous observations. Therefore Peirce argued that all theories are, therefore, fallible and subject to future revision. So when we say that "DNA has a double helical structure," we're really saying that Crick and Watson's theory has not been falsified. In my next blog, I'll sketch in Peirce's Scientific Theory of the Fixation of Belief.