Holy crap! How can I tackle this one? (Freakonomics asks whether you could start a public library today.)
First of all, we need to make a lot of assumptions; one, that people already know how to read.
The reason I say this is that prior to the public library, most books were kept in private libraries (if the argument is that publishers would fight against public libraries, then "subscription" libraries would also be missing from the social landscape). If my memory of the TV show Christy is any indicator of the literacy of common folk, then prior to making books available through public libraries, people dernt read good.
If people couldn't read, then society as we know it, doesn't exist. No TV Guide, no billboards, no Netflix pop-ups and no pregnancy warnings on my bottle of Jim Beam.
So we'll assume people read penny sheets or serialized stories in ladies' monthlies or ribald tales of farm hands and farmers daughters printed on the backs of sacks of grain.
Initially, if I wanted to purchase a book, I might need to drop a bucketful of money. Just like when you wanted to buy certain videotapes and they were "rental" copies that cost $100 and "at home" copies that were $20, publishers would discourage me from loaning out the wrong kind of book. I'm convinced that the gentle nudge of federal marshals kicking in my front door at midnight to confiscate all my library books and to knee me in the groin would help my decision to purchase the correct $100 rental copies.
Confused yet? I sure as hell am. And I'm the one writing this thing. Damn you, Freakonomics! (note: I bet you don't even remember that back in the day, you had to pay a membership fee to a video club, like $50 or a $100 just to have the privilege to rent movies for $3 a day. So your membership buy-in was similar to contributing a book to a library to allow you to be a borrowing member; if you wanted to start a public library from scratch, one of the methods might be to have your "patrons" contribute a book to the library. This is why pr0n was so popular with the mom-and-pop video stores; there were no "rental" copies, and they could buy and rent all the $29.99 copies of Co-ed Cuties they wanted. So it's possible that any new public library would need to stock a whole lot of naughty paperbacks just to get off the ground.)
But ultimately, publishers would create a business model that would produce a cheap mass marketed product that would subsidize any profit loss they estimate lending libraries would suck from their bottom line.
And public libraries would exist. Because frankly, public libraries sell books.
Hell, I'm a freakin' economist.
(another note: this is one of those hypothetical exercises that you might write about in school, and if so, this isn't very good. I probably need to work out a few pages on this, but dude, I already have my degree. So if you need an idea for a paper, use anything here and run with it. Run my little whippet! Run!)
(another 'nother note: that freakonomics guy is totally off on this one...you wouldn't need the "permission of the big publishers to open a public library; you could do it from mostly public domain titles. And small independent publishers would spring up over night to fill the needs for "modern" stories. I don't see any downside to creating a public library, unless you're trying to control what information reaches the citizenry. Alright, I'm done thinking about this.)