Newspapers and Parties: How Advertising Revenues Created an Independent Press

Maria Petrova of the New Economic School recently published a study titled ‘Newspapers and Parties: How Advertising Revenues Created an Independent Press.’ Below is the abstract:

Does economic development promote media freedom? Do higher advertising revenues tend to make media outlets independent of political groups’ influence? Using data on the 19th century American newspapers, I show that in places with higher advertising revenues, newspapers were more likely to be independent from political parties. Similar results hold when local advertising rates are instrumented by regulations on outdoor advertising and newspaper distribution. I also show that newly created newspapers were more likely to enter the market as independents in markets with higher advertising rates.

Barack Obama vs. Henry Hazlitt

Barack Obama:

I’ve insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits and excessive administrative costs and executive salaries, it could provide a good deal for consumers, and would also keep pressure on private insurers to keep their policies affordable and treat their customers better. . . .

Henry Hazlitt, Economics in One Lesson:

In a free economy, in which wages, costs and prices are left to the free play of the competitive market, the prospect of profits decides what articles will be made, and in what quantities — and what articles will not be made at all. If there is no profit in making an article, it is a sign that the labor and capital devoted to its production are misdirected: the value of the resources that must be used up in making the article is greater than the value of the article itself.

One function of profits, in brief, is to guide and channel the factors of production so as to apportion the relative output of thousands of different commodities in accordance with demand. No bureaucrat, no matter how brilliant, can solve this problem arbitrarily. Free prices and free profits will maximize production and relieve shortages quicker than any other system. Arbitrarily fixed prices and arbitrarily limited profits can only prolong shortages and reduce production and employment.

The function of profits, finally, is to put constant and unremitting pressure on the head of every competitive business to introduce further economies and efficiencies, no matter to what stage these may already have been brought.

HT: Organizations and Markets

Milton Friedman: ‘The Business Community’s Suicidal Impulse’

In 1999, Milton Friedman wrote,

There’s a common misconception that people who are in favor of a free market are also in favor of everything that big business does. Nothing could be further from the truth. As a believer in the pursuit of self-interest in a competitive capitalist system, I can’t blame a businessman who goes to Washington and tries to get special privileges for his company. He has been hired by the stockholders to make as much money for them as he can within the rules of the game. And if the rules of the game are that you go to Washington to get a special privilege, I can’t blame him for doing that. Blame the rest of us for being so foolish as to let him get away with it.

I do blame businessmen when, in their political activities, individual businessmen and their organizations take positions that are not in their own self-interest and that have the effect of undermining support for free private enterprise. In that respect, businessmen tend to be schizophrenic. When it comes to their own businesses, they look a long time ahead, thinking of what the business is going to be like 5 to 10 years from now. But when they get into the public sphere and start going into the problems of politics, they tend to be very shortsighted.

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Milton Friedman: ‘The Social Responsibility of Business is to Increase its Profits’

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The Profitable Fed

According to a report released yesterday on economic growth and corporate profits by the Bureau of Economic Analysis, the Federal Reserve seems to boast impressive profits:

(Click to enlarge)

The Commerce Depart report shows the Fed earned money at a $46 billion annual rate in the second quarter. That figure is up 48% from this point last year. Jon Hilsenrath of the Wall Street Journal attributes this to the Feds ability to “borrow money for next to nothing-– from mortgage backed securities purchases to commercial paper loans to emergency loans to banks.”

Quote of the Day

“The worst crime against working people is a company which fails to operate at a profit.”

~ Samuel Gompers, 1908