I was having a discussion about the inevitability of monopoly in a free market with my friend fpb, the esteemed and learned Mr. Barbieri. I thought it might be more efficient to place the discussion under its own thread. While I disagree with him sharply, I hope not comment of mine will be read as a criticism of him personally.
This is not the beginning of the discussion, but we might as well start here as anywhere, because his comments are not dependent on any previous comment for their support.
One. There is no way to preserve an honest or unpolluted market without an above-the-parts authority, that is a State power, which has the power to regulate activities and punish transgressors.
Two. Without such an authority, agents in the market are positively encouraged to use fair and unfair means to destroy each other. That is because, in the absence of a regulating and punishing authority, aggressors enjoys a natural advantage over whoever does not initiate aggression. This sets up a perverse system of rewards for aggression.
Three. This inevitably leads to complete, tyrannical control, either by a single organized aggressor or by a group of mutually watchful ones empowered by mutual fear and the certainty that, all of them being already proven aggressors, the first to make a hostile move will be a danger to all the others. Such a group will make a particularly vicious and effective cartel.
Four. This pattern of economic activity is easily found in organized crime, which is nothing but a group of businessmen without fear of the State. Their purpose is the same as that of other businessmen – steady profit; their methods are the same – the provision of goods and services. The only difference between a mafia boss and the head of any other large company is that the mafia boss works the consequences of ignoring the law into his calculations of profit and loss and into his business planning, both long-range and day-to-day. And the mafia boss, operating without any State authority, welcomes competition like Al Capone welcomed Giuseppe Giunta, and tolerates it as well as Capone and Bugs Moran tolerated each other.
Five. While the presence of a state authority is a necessary precondition of a free market, it is not a sufficient one. The state can be neutered, penetrated, corrupted, co-opted, or scared off.
Six. Absolute power is not only inherently corrupting, it is also sought by those who are inherently corrupt. As I said, an aggressor has a natural advantage in a context of lawlessness. Lawlessness rewards the worst human instincts. Out of six tyrants, five will be natural criminals; the sixth will behave as a criminal.
Seven. The possession of a monopoly in any market, setting aside the nonsense about having a monopoly in your own goods, places a man in the position of a tyrant, a position which is inherently corrupting. Therefore it is dangerously optimistic to expect anything but tyrannical behaviour by anyone who has been placed, for whatever reason, in the position of a tyrant. Uncorrupted tyrants are statistically improbable.
Eight. Any monopoly forms an unaccountable centre of power that is inherently alternative to the State. When a man can judge and punish another man without recourse to the State, the State has a rival, which is intolerable. (Case for study: a monopolist decides to drive a supplier out of business. It does not matter whether the supplier accepts the monopolist’s prices; the point is that the monopolist will not buy from him. Perhaps the supplier has offended him, perhaps his wife has offended the monopolist’s wife. The supplier can no longer sell to anyone, and unless the State has the physical power to overcome the monopolist’s diktat and force him to buy from the blacklisted supplier, the supplier is doomed.)
Nine. For this reason, where a monopoly is inevitable, the only possible thing to do with it is to leave it in the hands of the State. The State may or may not behave tyrannically with it, but a democratic State is accountable to its citizens, while a private monopolist is accountable to nobody. What is more, that is what will happen in practice in the end. Because all businesses sooner or later go bust or need rescuing, so will this private monopoly – and faster, because monopoly breeds sloppy business habits and arrogance. Sooner or later, if the goods or services it monopolizes are indispensable, the State will have to step in to rescue it. Cf. Fannie Mae/ Freddie Mac. (Or the British nationalization of the failed train companies in 1948, or many other instances.)
Ten. What the State must never do is to take the liabilities of a failed business while allowing owners and managers to enjoy the advantages; that not only would be to put no prize on failure, but to directly subsidize inefficiency and tyranny. Failed companies MUST go to the wall, especially in the persons of owners and responsible persons. I accept that limited liability for shareholders who did not take part in management and barely knew what was going on is a good idea, but management and llarge investors MUST be exposed to the risk of failure.
I believe in the free market as a principle. A truly free market not only is an efficient way to produce goods and services, but also removes from private hands some ugly moral temptations – the temptation to aggression, the temptation to use business to gain power rather than to provide a service, the temptation to become a little god. Do you?
Let us take your points in order:
One. Government is necessary to maintain an honest market. Granted.
Two. In an anarchy, there is an incentive for violence. You smudge the term a bit by talking of market agents and using the word “unfair”, as if you mean to equate unfair trade practices (things like lowering one’s price) with acts of vandalism and violence. Nonetheless, I agree that in an anarchy, there is an incentive for violence. Granted
Three. Here is the core of the argument: that in an anarchy, the incentives favor the growth of a monopoly. Unfortunately, this is a gratuitous statement, ambiguous, and unsupported. In an anarchy, nothing is necessarily inevitable, except that the lives of those involved will be poor and nasty. It is merely gangs of desperate crooks preying on each other. It might last a short time or a long time. There is no particular reason why one man or a cabal of businessmen will come to triumph in the war of all against all, as opposed to a cabal or policemen, pirates, soldiers, sailors or, for that matter, tailors or firemen, lawyers, tinkers, or Indian chiefs. Indeed, since both soldiers and Indian chiefs have arms and a color of legitimacy, one would think them more natural candidates for the role of tyrant.
So, then, my guess (which I would like you to confirm or deny) is that you take it as an axiom that liberty in the market is the same as total anarchy. Without this axiom, your argument makes no sense to me. I am analyzing how a free market operates, and you are talking about what happens when government breaks down. Indeed, this would seem to indicate to me that you assume the very axiom you claimed (in a previous discussion) I assumed, which is, namely, that government and marketplace are inimical and mutually exclusive.
You are not talking about the way real businesses behave in the real world: at this point, all you have done is hypothesize a Hobbesian war of all against all, and then pretended that businessmen are pirates. In real life, such anarchies diminish when one group is drawn together by law or custom or self-interest to follow a leader, renowned for his ability to keep the peace, perhaps his reputation for justice, but certainly not for his ability to sell bread or ducks or railway tickets.
No one, merely by selling railway tickets, or ducks, or bread, puts himself in a position to keep the peace, or threaten it. Political power is not market share.
So far, you have made a bald statement that, absent government, monopoly is inevitable. In a previous argument I listed several limiting factors that make monopoly not inevitable. So far, you have not answered, or even noticed, these factors. Again, we are not talking about monopolies created by a state grant of monopoly, but those that arise in a free market of a particular time, place, and circumstances allows one man or cabal of men to corner the market. I will once again remind you of the difference between a monopolist who charges a monopoly price, and one who maintains his monopoly by keeping prices low. Only in the first case is there economic inefficiency, and only in that case is there evidence that the monopoly is involuntary on the part of the customers, rather than their will and decision.
Four. You merely equate legitimate businessmen with criminals. This is not an argument that needs refuting. It is a reflection of your psychology, but not of your philosophy.
Criminals breach the peace, and seek to use any means, including violence, to gain loot. Legitimate businessmen uphold the peace and use no means aside from rational and mutually beneficial trade to gain their deserved rewards. Between someone who steals money and someone who makes money, the surface feature they have in common is that money is involved. To equate theft and production on the grounds that both involve money is superficial.
What you mean to say is that in a black market, to the degree and in the respects that the black marketers act like legitimate businessmen, certain rules of economics apply. The cost of getting caught at smuggling contraband is part of the overhead. The difference here is that, where there is no common power to keep them all in awe, there is rampant fraud, breech of contract, and, when rival black marketers descend further into crime, violence. The argument that legitimate businesses would resort to violence to maintain their market position on the grounds that criminals, rumrunners and dope smugglers resort to violence to maintain their black market position is (a) not bourn out by the facts and (b) a violation of the formal logical rule against the excluded middle. I have listed half a dozen monopolists who did not resort to violence even when state backed coercion was used to mulct them of their honestly-earned market position (to the detriment, I must rush to add, of the customers). You have not listed a single real life counter example.
The difference between businessmen and criminals is clear enough from the behavior of the alcohol market after prohibition. The dominant beer brewers in America, Schlitz, Pabst, and so on, did not drive Al Capone out of Chicago with tommyguns. Crooks are stupid, violent people, and cannot compete with real hard working enterprise.
Five. An ineffective government cannot maintain the peace. Granted.
Six. Absolute power is inherently corrupting. If we are talking of absolute political power, I grant it. If you are using the word “power” ambiguously, I do not follow what you are saying.
You seem to equate service in a marketplace, the ability to please customers to the point where they are not willing to maintain an alternate supplier for whatever good or service one supplies, with the ability to enforce your will on them. It is not power, except in a misleading metaphor.
Allow me to quote from Judge Learned Hand in the Alcoa antitrust case. This is a real world monopolist. He lists the ‘crimes’ for which Alcoa was to be punished:
“It was not inevitable that it (Alcoa) should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every new- comer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.”
To summarize: that for which Alcoa was penalized was their ability to anticipate consumer’s needs, to serve those needs, to have sufficient capacity to serve those needs, to embrace new opportunities (opportunities, that is, to serve its customers and supply their needs) and to have a great organization, experience, connections and personnel, all things they earned by the sweat of the brow.
That is your ‘power.’ In the free market, he who serves most is most rewarded. Now imagine what would happen if the President of Alcoa, thinking himself Tarquin the Proud, ordered his employees to kidnap a beautiful girl and bring her to his office to be ravished.
Tarquin could do this because he was the king. He was the police, the power that punishes misdeeds and keeps the peace.
The president of Alcoa, no matter how much aluminum he digs up, gains no particular ability to punish wrongdoing, command the army, gather taxes, or keep the peace. How in the world would his ability to provide aluminum to aluminum markets translate into some sort of political power?
At best, he can bribe the officers of the state to keep his competition tangled in the law, or, through tariffs, prevent his customers from leaving, but he cannot do these things without the cooperation of a corrupt and intrusive state to begin with.
Seven. As far as I can tell, this is merely a restatement of your original contention that monopolists are tyrants. One might as well say monopolists are Green Martians. You would do better to define your terms.
I urge you to look more closely at the cases you have dismissed as nonsense.
1. The first a case where the monopolized good is easily substituted for another. The example I used is one where I have a government-backed monopoly on all works of intellectual property I produce. If I raise the price of “John C. Wright” SF books, the customers will merely read books by John Scalzi or some other SF writer. I am not in a position to charge a monopoly price. To speak of me being tyrannical merely because I am a monopoly is risible.
Note that it is not ” a monopoly in my own goods” — that phrase is meaningless. All monopolies are in the goods and services owned by them.
2. The second case is one where the monopoly exists in a certain market for a certain good but not in others. International Shoe (a real antitrust case, see http://www.altlaw.org/v1/cases/400626) was between the seller of an all-leather shoe and a more fashionable shoe which contained both leather and other materials. They competed in several states in the union, but not in others. A parallel case existed with Alcoa, where it had a monopoly on aluminum foil but not on tin foil. If International Shoe restricted output in order to raise prices, it customers would buy non-leather shoes rather than leather shoes. If Alcoa restricted output of aluminum foil, customers would buy tin foil. To speak of International Shoe or Alcoa being tyrants is risible: they did not kill or silence a single man. The contrast with Caesar or Stalin, from whose hands flowed rivers of blood, could not be more marked, and yet this is the equation you are making.
3. The third case is one where the monopoly exists in certain locations but not in others. This case by itself would be fatal to your argument. No company and no businessman, absent help from the king or parliament, has the ability to prevent its customers from shipping products from overseas, or even from immigrating. A tyrant who cannot fence in his victims with an iron curtain or a Berlin wall is not a tyrant, at least, not my the standards of the Twentieth Century, where socialist experiments resulted in the deaths of tens of millions.
You are trying to make the argument that Ronald McDonald has the same power of life and death, the same freedom from legal accountability, as Stalin or Pol Pot or Castro or Caesar or Napoleon.
4. The forth case, and the one most damaging to your argument, is where the monopoly maintains its market position by offering lower prices. For example, the American Can Corporation had a sizable market share in some states in America, but not in others. In this 1949 case, the court found that American Can held dominant market position because it “coerced” its customers into accepting long-term leases. No allegation of gangster tactics was made: the “coercion” in this case was that American Can by offered attractive terms to its customers (price discounts for large orders). So, as a part of his final decision in the case, the judge ordered American to raise prices to its can customers so that there could be more competition with less efficient can producers and can-closing machinery makers. Consumers of cans ultimately paid for this contrived increase in “competition.”
In this final case we see the full absurdity of your contention. Not only was the dominant market position of American Can in no wise a tyranny, it was beneficial to the customers. In order to correct for this, the trustbusters, men of the same mind as Teddy Roosevelt, used the coercion of the law to inflict higher prices on the customers.
5. The fifth case is the peculiar one I mentioned above, where General Electric attempted to keep its inefficient competitors kept in the market artificially, and therefore fixed and raised prices. General Electric was, in effect, raising its prices to drive business into the hands of its competition. This practice was also condemned as an antitrust violation, and several prominent businessmen, who had done no earthly wrong, were sent to jail for it. I cannot by any stretch of the imagination reconcile this behavior by the electrical company owners as officers with the behavior of tyrants. As far as I know, they did not hire Pinkertons to kill the judge or tamper with the jury or even threaten to blow up their own power plants.
Eight. You are again conflating the real power of the state with the metaphorical “power” of monopolists to serve their customers. The case you offer for study is not a real case: the closest real case is Tuttle v. Buck (Supreme Court of Minnesota, 1909. 107 Minn. 145, 119 N.W. 946.) In that case, a banker of wealth and influence established a barbershop for the purpose of driving the plaintiff out of business, and used his influence in the community to attract customers. The court found (a finding I regard as absurd) that the second barbershop did not exist for any legitimate purpose. In real life, all that such competition does is drive down prices. Please note that the holding in that case would have prevented entry of the banker into the barbershop business, which, on the face of it, looks like an attempt to uphold a monopoly and restrict competition.
In any case, the real example makes your hypothetical example difficult to support: the banker did not at any time form an “unaccountable center of power” that rivaled the state, nor did he “judge and punish” the man, aside from such judgments and such punishments as everybody, anybody can freely do and make in a civilized society.
You can say it is bad and unfair when a wealthy man uses his power and influence to damage a rival to whom he has taken a personal dislike, and I will agree with you whole-heartedly. I would also say it is bad and unfair for customers to boycott a business to whom they have taken a personal dislike, if their dislike is not justified: for then the customers are in the position of the wealthy man, using their influence and market power unfairly. But, taken at face value, this is an argument against private wealth, not against monopoly per se.
You have yet to overcome, or even address, the basic issue that some monopolies gain their market position by cutting prices. A monopolist is not necessarily a wealthy or influential individual. Monopolies can lose money like any other business. A worldwide monopoly in whalebone corset stays or whale oil carriage lamps would be poverty-stricken.
Nine. You then draw a conclusion unrelated to the previous argument. Even if we grant that it is bad to allow rich men to tyrannize poor men, and even if we assume all monopolists are rich men, it does not necessarily follow that free market competition inevitably results in monopolies; it does not follow that monopolies are necessarily tyrannical; it does not follow that the government is necessarily more trustworthy or more accountable than the monopolist.
Indeed, your one comment, that the Democracy is accountable to the voters, whereas the monopolist is accountable to no one, is simply false. The monopolist is accountable to his customers; and, in any case, you have not yet established that monopolists, even wealthy monopolists who have cornered the market in some indispensable good, like oil or wheat, are somehow no longer accountable to the law for crime, breech of contract, or fraud. (Indeed, if the monopolist were above the law, as you seem to argue, this would necessarily mean they were above the antitrust laws as well).
I have not even brought up the main problem with antitrust laws, which is, that the dominant companies use the law to prevent entry by possible competition. A certain amount of corruption is to be expected when the state meddles with the market, for then the businesses have a vested interest in capturing the machinery of the state.
When I come to this sentence, I notice that you confess your argument is flawed:
“Because all businesses sooner or later go bust or need rescuing, so will this private monopoly – and faster, because monopoly breeds sloppy business habits and arrogance. Sooner or later, if the goods or services it monopolizes are indispensable, the State will have to step in to rescue it. Cf. Fannie Mae/ Freddie Mac.”
If the monopolies go bust on their own, then they are not inevitable. Indeed, you are arguing the opposite, that the breakdown of monopolies is inevitable. QED.
The instances you give of government interference in the free market would seem to bolster my case. I agree that such bailouts form an uncomfortable nexus of wealth and political power, and usurp the sovereign rights of the consumer. In effect, in a bailout, a consumer is being taxed to support a business he has already determined, by his habits of buying, not to patronize. This raises prices and encourages waste and inefficiency.
Ten. The state should not bail out failed businesses. Granted. Whether or not corporate officers should be personally liable for corporate debt is another and more difficult issue, not related to this topic.
You close with a question:
” I believe in the free market as a principle. A truly free market not only is an efficient way to produce goods and services, but also removes from private hands some ugly moral temptations – the temptation to aggression, the temptation to use business to gain power rather than to provide a service, the temptation to become a little god. Do you?”
Yes, without reservation.
However, and more to the point, I do not believe that monopolies are inevitable, for the reasons stated and repeated above.
For reasons I have no space to go into now, I believe antitrust laws do more harm than good, and serve, in the long term, to increase inefficiency, as paradoxical as that sounds.
In sum, the Marxist argument that monopolies are the inevitable outcome of a free market is unrealistic. Marx’s argument is that large combinations are more efficient than small businesses in all cases, and that there is no countervailing tendency in the market, no efficiency in smaller businesses. Anyone who has seen a large business downsize in order to stay competitive will realize at once the simplicity and absurdity of te Marxist argument. As if it were cheaper to pipe all drinking water from one well in Mississippi through transatlantic pipes to houses in Paris, rather than sink a Parisian well.
Mr. Barbieri’s argument, to the degree I can make it out, is a moral one rather than an economic one: he merely equates marketplace “power” with legal power, and says that the law can admit no rivals, and that absolute market power is like unchecked legal power, therefore corruptive. The statement overlooks the difference between the two; they are practically opposites. One is coercion and the other is service. It is also not on the topic as to whether monopolies are inevitable.
Monopolies are harmful to the interests of the consumer when the monopolist can charge a monopoly prices, which is, a situation where the profit is greater by decreasing supply (as when selling four units for five dollars each nets more than selling five units at three dollars each). Generally, such restriction can take place only when there is a good or service with no elasticity of demand (something like oil, for which there is no substitute) and where the good is a necessity, and when there is a high entry cost or other barrier to competition.
Finally, the argument that one monopoly will take over the world is as fanciful as the fear that one empire will take over the world. Smaller states are constantly absorbed and overwhelmed by larger, are they not? If there is no limit to growth, why is it that the Roman Empire has no conquered every scrap of ground on Earth, including the Artic, and gone on to conquer the moon? The answer is, of course, there are limits to growth, limits to logistics, limits to economics. We live in a world of scarcity.
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APPENDIX:
I have gathered here below the beginnings of this discussion. A perusal of the whole discussion is of academic interest only, since the discussion proceeds thematically rather than logically: to my intense disappointment, Mr. Barbieri simply ignores the questions I raise and does not address the argument offer. I cannot tell if this is indifference on his part, or if he does not understand my points, or perhaps he is answering my points and I do not understand the answer.
One need not read the material below to understand the argument above, but it forms the context of the discussion, and included cases and examples I reference.
My original comment that started it all:
(Indeed, I am reminded of the Marxist daydream that says one business will eventually take over all others, buy up all land from pole to pole, and monopolize the world. Because business “inevitably” leads to monopoly, donchaknow).
Mr. Barbieri argues:
That business did not turn into monopoly is not due to any inborn glory of business as such, but to the anti-business activities of such persons as Theodore Roosevelt. If you want to see what happens when business is not subjected to democratic control, you should visit certain Latin American countries, where private monopoly, as I was told by a friend who had lived there (and who was not a Marxist, but a trained accountant for one of the Big Four accounting firms), can be felt in the streets. You can physically see the domination of the country’s business by a few families. And it is no coincidence that those countries are rather poorer than the average. Indeed, you can see the same in all those fields where Microsoft has eliminated competition – and started resting on its laurels. Unregulated competition leads to monopoly as inevitably as it does in organized crime – where monopoly is the natural state of things, and any competition is resisted with war; and monopoly leads to economic sluggishness and intellectual impoverishment. What preserves us from that are not the wonders of unregulated capitalism, but the rule of law and the power of democracy, as long as the democratic state did not allow a rival centre of unregulated power to assert itself.
My counter argument:
This is bad economics, and a misreading of history. Was Roosevelt did was reward certain combinations, which had successfully driven the price of certain commodities, like oil, down to the level where the middle class could afford it, with massive losses, and the sale of their assets to less efficient competitors, which ended up costing the consumer more for various goods and services than they would have otherwise paid.
Like anything else, a monopoly, when it is not artificially supported by state intervention in the market, is controlled by the law of supply and demand, which means, by the sovereign consumers. The only way to maintain a monopoly in a given market, absent such artificial supports, is by providing the customer with lower prices than would otherwise obtain. Whatever the objections are to a low-price monopoly, it is not an objection that is grounded in economics.
Now, there does from time to time rise conditions where a ‘monopoly price’ can be charged for a good: that is, when a seller can reap more profits by selling less. Obviously this is rare even in cases where one seller controls the whole supply of a good: in most cases, even if a manufacturer had total control over the supply of a good, selling five units at four dollars a piece will net him more than selling three units at five dollars a piece. And what he can charge depends on the reactions of the buyers to a price hike.
A monopoly price arises when restricting the supply raises the net profit: the good is in such high demand, that the buyers will bid the price up past its unit cost: in the example above, in order to maximize profits above selling five units at four dollars a piece, the monopolist would have to sell three units at seven dollar a piece (Otherwise, he makes more money by selling more units at a lower unit price).
Much depends on what economists call elasticity of demand. Only certain goods, necessities, are in such demand that no substitute is feasible, and buyers are not willing to do without. As a counterexample, in the famous Alcoa case, the Court determined that Alcoa had a monopoly on aluminum foil. The court did not notice, and did not care to notice, that tin foil could and was substituted by buyers driven away by the increasing costs of aluminum foil.
The other limit on monopoly price is entrance costs. Monopolies can charge monopoly prices only if other competitors are not ready and able to enter the field. Industries with large start-up costs and times, or which require cadres of skilled workers, cannot be set up overnight, and rush in to claim their own share of a high-price bonanza. That is not to say it cannot be done, but a monopoly would have to charge either a higher monopoly price or charge it over a longer period of time, to generate the kind of profit needed to tempt a newcomer into the field.
Obviously again, the higher the monopoly price and the longer the market is cornered, the greater the incentive for a newcomer to enter competition.
Finally, and most importantly, the invention of double-entry bookkeeping allows the costs and profits of each section or division of the industry to be assessed separately. This means that even if The World Steel Corporation sells widgets in every other town on the planet, nonetheless if the local widget shop costs more than it makes in Dead Horse, Alaska, the monopolist is under an incentive to sell the business, and the assets, to someone who can use it more efficiently, even a Mom and Pop shop.
The cost involved in communicating from Dead Horse Alaska to regional or national headquarters of World Steel Corporation is another limit to monopoly growth. The harder it is to get resources and men and information back and forth, the more profitable it becomes for local competition to displace it or buy it out, because local competition does not need to amortize for losses World Steel suffered in Burma or Patagonia.
So, to sum up, Teddy Roosevelt harmed, rather than helped, the cause of the consumers, decreased the efficiently of American business, and somehow ended up with the credit as if he had done a good thing.
Meanwhile, Standard Oil was painted as the villain, but the low cost of petroleum oil made it so the middle class (and eventually everyone) could afford kerosene lamps to light up their houses at night (this was before electrification). As a quaint side effect, Standard Oil also saved the whales from extinction, by driving down the demand for whale oil.
There is nothing inevitable about monopolies and nothing innately more efficient about monopolies. Some particular fields enjoy tremendous efficiencies of scale (railroads, telephone services, other industries requiring nigh-universal infrastructure), and they can effectively monopolize a market for many years: but a glance at the fate of railroad stock in the postwar era shows that even very well positioned ‘natural monopolies’ cannot long afford to sell above the natural market price.
The free market is democracy, and democracy is the free market. You cannot have one without the other. To speak of the democracy opposing and preventing the free market from gaining power is to speak in paradox.
Mr. Barbieri writes in reply:
You talk like someone who is entirely outside of reality. Your arguments break down on human nature: namely, that anyone who effectively has a monopoly on anything will not let it go without force, and will rather ruin the country than lose position. It is as simple as that. A monopolist is a tyrant, and as Aristotle said, men do not become tyrants in order to keep warm. History proves it again and again. Businessmen can and will use the methods of gangsters to get rid of competitors; and gangsters, for that matter, are only businessmen who are not afraid of the State. And the only power that can prevent a monopoly, just as easily as it can create one, is the State
I answer again:
“Your arguments break down on human nature: namely, that anyone who effectively has a monopoly on anything will not let it go without force, and will rather ruin the country than lose position.”
Part of human nature is not to throw good money after bad. Companies downsize and retreat from markets as a fairly common business practice, including monopolies.
If by ‘force’ you mean that companies, rather than pull out of a market where they are losing money, will hire Pinkertons to go in and rough up the competition, buy a private army, and overthrow the king? Hm.
Seriously: how often has that happened? I can think of examples in my country where businessmen hired Pinkertons to break up gangerist strikes, but I have not read example where they sent gangs to burn out the competition. The peaceful nature of the beer trade after prohibition was lifted is an interesting case history: the gangsters who had made so much money rumrunning now could not compete with peaceful breweries.
Businesses resorting to force to retain their monopolies has not happened in America to my knowledge, even when General Electric was hounded by Anti-Trust lawsuit that were particularly shameful.
Indeed, as far as I know, the ten year long anti-trust suit involving IBM in the 1980’s never once provoked IBM to order their helicopter antisubmarine warfare avionics division to open fire on the Courthouse in White Plains, New York.
I do not recall that Bill Gates shot anyone any Netscape when they sued him. (Oddly enough, I would agree that Netscape resorted to coercion when their product was losing in the free market, but I suspect that is not an example that lends itself to your arguments.)
Why should the stockholders permit a monopolist to retain his market share by force when he is losing money?
“Businessmen can and will use the methods of gangsters to get rid of competitors”
Which would seem to be an argument for strict enforcement of laws against violence, but it has no necessary connection to our argument about the inevitability of monopolies.
You forget that you are trying to argue that there is an innate efficiency to monopolies in the market, which will “inevitably” prevent entry into the market of competition. Unfortunately, you have not bothered to make that argument, so there is nothing here for me to answer.
“And the only power that can prevent a monopoly, just as easily as it can create one, is the State.”
Actually, all the state can do is by law prevent competition with a monopoly. If the consumers do not patronize it, there is not much the state can do in the long run.
The state can subsidize an failing monopoly through tax revenues to some other form of corporate welfare, I suppose, but, should they do that, the argument (which you have not yet made) that the monopoly is innately more efficient and therefore innately competitively superior to non-monopolies would then defeat itself.
The one power that allows a monopoly to remain in its position as the most efficient servant of the consumers is the consumers. In a free market, they are sovereign.
So far, you have not offered even a single argument to show that monopolies are inevitable; or that they are bad; or that, if inevitable and bad, that the bad outweighs the good.
Do you object to monopolies that lower the cost of the good monopolized to the consumer, or that maintain their market share by keeping the cost low?
Why do you trust the officials of the State over the private businessman when it comes to protecting the people from exploitation and unpleasantness? If men (no less the sons of fallen Adam than Rich Uncle Pennybags) go into the bureaucracy rather than into business, what prevents the evil incumbent on wealthy businessmen from descending on wealthy Senators?
A businessman stands for reelection every time I decide to buy to not to buy his product. A politician only stands for re-election either at fixed times or when facing a vote of no confidence. A king does not stand for re-election at all. Why trust the State over Standard Oil?
At first glance, it looks like John D. Rockefeller is on a shorter leash than Theodore Roosevelt.
I continued the argument in another thread:
I repeat to you what we were discussing. I said that the idea that the free market inevitably tends to monopoly is a Marxist myth. You replied that a democratic government should and must restrict the growth of monopolies. In this context, I assumed you were offering this as an argument to support the idea that monopolies are inevitable in a free market (for if not, the comment, while interesting, is irrelevant). So to counter, I offered an important distinction between times when a monopoly is undesirable as opposed to harmless (the presence or absence of a monopoly price) and mentioned several natural checks on the growth of monopolies. Albeit not explicitly stated, my argument there was that, where these checks are present, monopoly growth is curtailed even without the intervention of anti-trust laws or similar state intervention. You replied that my remarks betrayed a naivety about human nature, since businessmen will often resort to violence to maintain their market share, and that gangsters are merely business unafraid of the state.
So, then: I offered an argument grounded in the science of economics, defining my terms and offering a number of nuanced statements, and you rebutted with a simplistic irrelevancy. At that point the conversation languished. I offered three examples of monopolists (not what an economist would call a monopolist, but what a court of law would call a monopolist–the two are by no means the same) who did indeed allow themselves to be divested (in my opinion, grossly unfairly) of their market share. If you are curious, I can also describe to you the grotesque miscarriages of justice that typified the antitrust cases against General Electric and Alcoa. In none of these cases did the monopolists resort to violence.
But even if contrary cases could be found, say, in the bloody history of South America, or the British cruelties against the Irish, it would not confirm nor invalidate the original argument, which was about the inevitability of monopolies.
Indeed, I will use the example you mentioned: in the rumrunning trade during Prohibition, no one supplier of rum gains a monopoly, not even Al Capone, not even after competitors were gunned down in the St. Valentine’s Day Massacre. While I have severe reservations about equating the actions of smugglers with the behavior of an ordinary businessman in a civilized nation in the free market (for one thing, certain transaction costs are lowered due to an expectation of repeat business),nonetheless, even if we take rumrunners as our model, the ‘inevitable’ dominance of a monopoly does not seem to be present. Al Capone did not control the statewide nor the national market, nor was he in a position to stop customers from seeking substitute goods when he raised his prices.
Marx’s error was that he concluded from the mere fact that some businesses had economies of scale, that all business did, and that the economies continue at any scale whatsoever: this is manifestly false.
To which this was the reply:
First: economics is not a science, but a branch of group psychology. And psychology is not a science. Aside from Popper’s famous argument, there is mine, which runs as follows: science happens when the subject reflects on things outside itself. When the subject is the object of its own reflection, you have, not science, but history – or human studies of some sort – or psychology. You talk as though you could have an economics without reference to human psychology. I tell you that I will believe that when I believe in square triangles and dry water. Anyone who ends up in a situation of monopoly, for whatever reason, ends up in a situation of tyranny. That is a question of human psychology, not to mention morality, not of numbers. From beginning to end, you do not want to engage with this. And you do not want because of a number of absurd preconceptions which you have no intention of examining – for instance, that the free market and the State are somehow inimical to each other. To the contrary, as I have said again and again, it is monopoly and the State that are naturally inimical; either because a commercial monopoly is naturally corrupting (study the interrelationship of FIAT and the Italian State until recent times, for instance), tending to break rules and to create an alternative area of sovereignty to the State, which ought to be the only sovereign body. When laws are written and State interventions decided in Turin rather than Rome, democracy and sovereignty are impaired. Conversely, only the State can guarantee a free market. Only the State can prevent crime, break down organized bands and gangs, make and certify sound money, legalize and enforce contracts, punish transgressors, pursue or legitimate the pursuit of defaulting debtors, define, pursue and punish fraud, and guarantee the certainty of private property. Without State guarantee, none of these things are worth a damn; and therefore, without State guarantee, there cannot be a free market. Of course, that the state should and must do all of these things does not guarantee that the state will do them; the state is made of human beings, like businesses of every kind, like the churches and any other kind of association.
Everything you spoke of was special pleading. I repeat: anyone who is in a position of monopoly is in a position of tyranny. And that is not only towards his custormers, but also towards his suppliers: ask any British food producer what they think of Tesco’s and Sainsbury’s – off camera and off the record, of course. The United States fought the bloodiest war in their history to put an end to the group monopoly of the labour market in certain federal states. I wholly approve of that.
Finally: if there is any sector of the economy where a monopoly is inevitable (as for instance in such closed systems as railway transports) or where competition positively reduces efficiency and profitability (as in the post), those sectors should be nationalized. What should never be done is what the Americans did with Fannie Mae and Freddie Mac, that is to guarantee private companies from failure, thus leaving them all the instruments of corruption and the State, far from its legitimate role as judge and jury, to be their backer.
Incidentally, the definition of public expenditure as covering all those areas where the private sector cannot operate efficiently and which are nevertheless necessary to the community belongs to Adam Smith. Read the fifth book of “Wealth of Nations”.
And again I answer:
“First: economics is not a science, but a branch of group psychology.”
Naturally, you may define your terms in any fashion that suits you. We may call economics a “study” if you wish.
The study of economics makes certain minimal assumptions about human action, such as, for example, that everything else being equal, a person will prefer the same good for less than for more (which is not always the cases–see, for example, Pet Rocks, which were indistinguishable from ordinary rocks. There are a particular class of luxury goods where a higher price generates more sales than lower: this is a rare case, however.)
In reality, economics is the precise opposite of psychology, since the psychology of the buyers and sellers is the one thing taken as a given, never explained nor taken into account. An economist can say that if two people want good X, then their mutual bidding might drive up the price of X, but he cannot, in his capacity as an economist, say why those two want good X.
“You talk as though you could have an economics without reference to human psychology.”
This comment is neither here nor there. This is not something I said, nor implied. And if I had or had not said or implied this, it would make no difference to the discussion at hand, which is about the inevitability of monopolies. If you are talking about a different topic, please indicate to me what is your topic, and what you mean to prove.
What is it that you think economics actually studies? What do you make, for example, of Ricardo’s law of comparative advantage, or the law of supply and demand? Are these example of “group psychology”? Could the behavior we see in the market place that the law of supply and demand be altered by some custom or law that influenced the group psychology involved?
“Anyone who ends up in a situation of monopoly, for whatever reason, ends up in a situation of tyranny. That is a question of human psychology, not to mention morality, not of numbers.”
It might be easier if you defined your terms. Taken literally, I have a “monopoly” on all books written by John C. Wright, and no one may copy my works without my permission, or else face government sanction. Am I a tyrant?
What about a pet store who sells ducks in Dead Horse, Alaska; if the only other pet store in town closes its doors, then the first pet store is a monopoly, even though it may be unaware of the other store’s closure. Where does the psychology of a tyrant come into play in this case?
One of the cases I studied in law school involved a manufacturer who sought to give business to his competition, in order to prevent the competition from failing, so as to not run afoul of the antitrust laws. He coordinated his price with the inefficient competition, and was successfully sued by the government for violations of the antitrust laws. Where does the psychology of a tyrant come into play in this case?
Can you give me your reason why you have come to the conclusion that all monopolists are tyrants? Can you define your term ‘tyrant’ so that I can know you are not merely indulging in a rhetorical flourish, please?
“From beginning to end, you do not want to engage with this.”
Because you have said nothing meaningful on the topic. Your comments so far are both irreverent and gratuitous. Irrelevant, because even if all monopolists were tyrants, it would have no bearing on the question whether or no monopoly is inevitable, or inevitable absent state intervention. Gratuitous, because you have offered me no warrant to agree with your conclusions. (I cannot take your word as an authority, because antitrust law is an area I have studied, and you have not.)
“And you do not want because of a number of absurd preconceptions which you have no intention of examining …”
I merely note once again that you belittle me, and call into question my integrity as a philosopher. I again turn the other cheek, and again do not answer you as honor says I ought. I forgive you.
“- for instance, that the free market and the State are somehow inimical to each other.”
This statement is irrelevant, and false. Nothing in the argument I have given so far depends on such an axiom, nor is it one I hold, nor does influence the argument one way or the other. It would be better for you to ask me what I think, or quote me, rather than speculate on what I think when you are talking to me myself.
Obviously trade is severely limited where there is no government ready to revenge acts of fraud and breech of contract. Some laws encourage the growth of the wealth of nations, others discourage it. There are economic consequences, for example, to passing realty by fee simple or by fee entailed. Since I am aware of these consequences, it makes no sense for you to say that (1) I am not aware of them or (2) that I am unwilling to examine them. Much depends on the particular state or the laws involved.
What I think you mean to say is that I do not believe the state, in and of itself, can generate wealth. At best, it can redistribute wealth. That, at least, would be an argument worth having. Of course, what I actually believe is more nuanced than that (since I believe laws like the UCC, the Uniform Commercial Code, greatly aid in the generation of wealth, for example). BUT yet again, your comment is irrelevant, because it has no bearing on the topic, which is, I remind you yet again, whether monopolies are inevitable.
“To the contrary, as I have said again and again, it is monopoly and the State that are naturally inimical; either because a commercial monopoly is naturally corrupting (study the interrelationship of FIAT and the Italian State until recent times, for instance), tending to break rules and to create an alternative area of sovereignty to the State, which ought to be the only sovereign body.”
Aha! At last, an argument. Give your example in some detail, please. What do you mean by “alternative area of sovereignty”? That was not the case with Standard Oil, General Electric, Microsoft, or International Shoe.
“Only the State can prevent crime, break down organized bands and gangs, make and certify sound money, legalize and enforce contracts, punish transgressors, pursue or legitimate the pursuit of defaulting debtors, define, pursue and punish fraud, and guarantee the certainty of private property.”
I agree with this statement, with the possible exception of making sound money. History would seem to indicate the opposite [state intervention inflates currency, interferes with the credit cycle, creates depression]. I still see no relevance to the topic.
“Everything you spoke of was special pleading.”
I am not sure you know what this means. I spoke of some of the limiting factors surrounding monopoly. I did not conclude that monopolies cannot arise. I merely argued that they were not inevitable. I did not conclude that they are not malevolent: indeed, I specifies certain cases where they are not. The case where a monopolist charges a monopoly price introduces inefficiencies into the market.
Please repeat back to me exactly what you think we are arguing about, so that I can be sure we are discussing the same topic.
“Finally: if there is any sector of the economy where a monopoly is inevitable (as for instance in such closed systems as railway transports) or where competition positively reduces efficiency and profitability (as in the post), those sectors should be nationalized. “
Why?
“Incidentally, the definition of public expenditure as covering all those areas where the private sector cannot operate efficiently and which are nevertheless necessary to the community belongs to Adam Smith. Read the fifth book of “Wealth of Nations”.”
Rest assured, I have read and reread Adam Smith’s WEALTH OF NATIONS. Whether or not Freddie Mac of public railroads falls under the Smithian definition is open to debate. See, for example, his condemnation of the public ownership of school and toll roads.
You do understand, do you not, that this response does not refute, or even address a single point I raised. Did you even read what I wrote?
