Column: On monopolies

Tree of Liberty

As usual, I think it is best to start the discussion of a topic by defining terms:

A “coercive monopoly is a business concern that prohibits competitors from entering the field, with the natural result being that the firm is able to make pricing and production decisions independent of competitive forces.” (Wikipedia)

Historical examples include the British East India Company, which had a monopoly on tea trade (this later helped fuel the American Revolution) and the First Bank of the United States, which had a monopoly on issuing money (now the Fed effectively does the same thing).

Coercive monopolies created by the government still exist today in areas such as mail (USPS), roads and utilities.

It has been suggested, often in order to criticize capitalism, that free markets lead to coercive monopolies. This is false, and can be demonstrated both in principle and historically.

In principle, it is impossible, because in a laissez-faire capitalist society there are no government subsidies or monopolies, and so competition is never truly impossible.

Even if competing with certain businesses might be very difficult, potential competition always exists because even monopolies have limits on how high their prices can be before they lose profits and encourage others to enter the market.

Moreover, goods and services can always be substituted by other goods or services when consumers deem it economically preferable; for instance, if gas makes driving too expensive, people use buses or other forms of transport.

Historically, capitalism never created monopolies. Even in the late 1800s, when Rockefeller controlled almost all of the oil industry in the United States, prices of oil steadily decreased in order to fight competition (with the result that consumers greatly benefited). Similarly, Microsoft, which was accused of being a monopoly a century later, had to sell its products very cheaply to maximize profits and defeat its competitors.

If this is true, why have big businesses been disparaged so often, both in popular media and in the political discourse? And why do we have anti-trust legislation?

There are surely many factors involved. And to the extent that distrust of businesses is due to some businesses having improper political ties, this is justified.

One main reason, though, is that people have almost always rejected the notion that it is moral for people to primarily pursue their profit and self-interest in general. Even today, businesses are primarily thought of as ways to provide jobs for people, not means by which individuals legitimately pursue the goal of creating and acquiring wealth.

We should revise this attitude. In a free society, where businesses do not and cannot rely on subsidies or special government favors, one can only be financially successful by providing products and services that people enjoy and view as worth buying.

Even Microsoft, with all its power, could not make the Zune desirable enough to compete with Apple’s iPod.

There should be no guarantee for smaller businesses to compete successfully against larger businesses — to the extent that larger businesses act irrationally or are unpopular, though, competition will be made easier.

Fear of monopolies in a laissez-faire capitalist society is illogical, historically unfounded and based on unjust evaluations of businesspeople.

It is time that we change our attitudes toward these individuals and view them not as our enemies, but as our liberators.

As Ayn Rand once wrote, “in the short span of a century and a half, [the businessperson] has released men from bondage to their physical needs, has released them from the terrible drudgery of an 18-hour workday of manual labor for their barest subsistence, has released them from famines, from pestilences, from the stagnant hopelessness and terror in which most of mankind had lived in all the pre-capitalist centuries — and in which most of it still lives, in non-capitalist countries.” (For the New Intellectual, 27)

If you want to compete with TRISTAN DE LIÈGE’s monopoly on the use of Ayn Rand quotes, contact him at tflenaerts@ucdavis.edu.