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Natural Monopolies in Capitalism

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I was listening to an interview with Ayn Rand and Mike Wallace and during the interview she said that monopolies can never exist in a purley free market, that all monopolies that existed in the past existed due to government help (subsidization). My question is if monolpoies can't exist in a purley free market, then how can a voluntarily funded monopoly of coercion or a government be funded?

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What do you mean "a voluntarily funded monopoly of coercion or a government"? What does "voluntary monopoly of coercion" even mean".

A proper government would be funded by voluntary means, and would have a monopoly on the use of force for the purpose of protecting rights. Does this clear up your confusion?

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What I'm saying is that if monopolies can't occur in a free market, and if government is a monopoly, then wouldn't that make government unworkable?

A government is NOT a business. It is an instrument of controlled and regulated force. It has a negative function: to arrest and punish rights violators. That is why we have governments. Governments exist to keep order in a society so its members can be about doing useful constructive stuff. Governments are necessary because evil folks exist, but Government is not a positive institution. It is -against- rights violations.

Bob Kolker

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What I'm saying is that if monopolies can't occur in a free market, and if government is a monopoly, then wouldn't that make government unworkable?
Examine the premise first: in what sense do you think monopolies "can't occur"? And why? What's the reason they cannot occur? In doing so, you also need to clarify exactly what you mean by monopoly in this case, because the term is routinely used two mean different things.
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What I'm saying is that if monopolies can't occur in a free market...

You have to be careful with what you mean by monopoly. Properly, it means the existence of a sole supplier of economic values whose position as that sole supplier is maintained by force, which meant either directly run by government or working under a government privilege. It was these that the original writers spoke of when condemning monopoly - and the action of these in railroads that spurred popular support for the Antitrust laws in the US. They cannot occur in a free market because governments do not support any business with force, and if any business is the sole supplier of anything they are not a true monopoly and cannot maintain their position without immense productive effort, such as that achieved by ALCOA.

Nowadays monopoly is take - improperly - to mean any situation where an organisation is a sole supplier, irrespective of why. The original immoral element, the government force, was dropped from the reasons for condemnation, and hence as the basis of the operation of the Anti-trust laws, because it didn't fit in with the statists' worldview of equating political and economic power. The end of that road is the infamous and pathetic prosecution against ALCOA.

... and if government is a monopoly, then wouldn't that make government unworkable?

The contexts are entirely different. The free market is where people trade in the expected absence of force altogether. Under that context, monopolies are impossible because the conditions of the real meaning of the word do not hold. Further, the bastardised meaning does not hold too well either as a position of being the sole or predominant supplier cannot be held without continuous and genuine cost reductions.

The government operates outside that context, and keeps its monopoly on its functions because it is centred around the legitimate use of force. It has and keeps its monopoly - in both the proper and improper sense of the word - because of that use of force that markets simply do not have. If anyone tried to set up an alternative retaliatory force provider within a given government's jurisdiction then that government would - legitimately - physically step in and put a stop to it.

JJM

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  • 5 months later...

I've been reading the posts on the monopolies, and I have yet to come across this point being addressed.

I understand that no monopoly can exist without the use of force -- monopolies don't exist unless they are run by the government or working under government privilege.

Are there some examples of such monopolies? As John McVey noted, "monopoly" nowadays is taken to mean any company who is the sole supplier of economic values, irrespective of why.

Was/is Microsoft not a monopoly, then? People accused Microsoft of being a monopoly, but they don't have any deal with the government, as far as I'm aware (of course that's my problem, maybe that industry is regulated somehow).

I always hear accusations of the oil companies, like Exxon/Mobil as being "basically monopolies" or "getting too close for comfort to being a monopoly" -- people generally cite the movie "Who Killed the Electric Car?" as evidence -- powerful oil companies squashing any new innovation that might be a threat to them (I havent seen the movie but from what I understand this is the premise).

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Was/is Microsoft not a monopoly, then? People accused Microsoft of being a monopoly, but they don't have any deal with the government, as far as I'm aware (of course that's my problem, maybe that industry is regulated somehow).

No, Microsoft is not a monopoly in the proper sense.

I always hear accusations of the oil companies, like Exxon/Mobil as being "basically monopolies" or "getting too close for comfort to being a monopoly" -- people generally cite the movie "Who Killed the Electric Car?" as evidence -- powerful oil companies squashing any new innovation that might be a threat to them (I havent seen the movie but from what I understand this is the premise).

What is Exxon Mobil the sole supplier of? The number of oil companies in the world is fairly large. How can Exxon be a monopoly? The fact that companies work against the interests of their competition (either actual or future) does not indicate a monopoly, but it makes a great excuse when a competitor or potential new entrant fails. If the electric car was the panacea that it is now claimed it was, it would have found it's way to market. It is easy for those who wish to blame competitors to cover up their own business inadequacies to point the finger at others.

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[...]it means the existence of a sole supplier of economic values whose position as that sole supplier is maintained by force, which meant either directly run by government or working under a government privilege. It was these that the original writers spoke of when condemning monopoly[...]

I think that you are correct in that respect. Bernstein would call those coercive monopolies. He made a distinction between coercive monopolies and productive monopolies:

The only monopolies that can be formed on a free market are productive monopolies, i.e., those that gain exclusive market dominance (or even enormous market share) by means of prodigious productivity.
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Was/is Microsoft not a monopoly, then?
They are a major provider of operating systems and other software, but they don't come close to being a monopoly even in the realm of OSs. In addition to the various Windows versions that MS sells, there are loads of Unix variants many of which are free, as well as mainframe systems like IBM's VM and OS. It is true that MS is the only supplier of the Windows operating system, just as Ford is the only supplier of Ford automobiles and trucks. Part of the concept of a monopoly is that there is "no real alternative"; and there are real alternatives to Ford cars, namely Dodge, Nissan, Toyota, or Chevrolet, similarly there are alternatives to XP.
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They are a major provider of operating systems and other software, but they don't come close to being a monopoly even in the realm of OSs.

The other trick that is done quite often is to represent the company as a monopoly by defining the "market" in such a way that it appears that the player has a very dominant share. I always thought the Microsoft / Intuit acquisition that got nixed by regulators was a hoot because we suddenly had a "personal finance software" market. I like to think if it requires more than 2 adjectives to describe the market then its not a real market. For example, Microsoft is hadly dominant in the "finance software" market, nor is it dominant in the "software" market.

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Are there examples of [coercive] monopolies?

Immediate examples are the various utility companies in the United States, which all have a government enforced monopoly within a certain region. In addition, the United States postal office I believe has a government enforced monopoly on letter delivery.

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Not any more they don't. I thought the utilities were deregulated (to an extent) years ago? I sure remember getting all the loads of advertising about switching electricity providers.

I'm pretty sure water is still regulated, though.

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Not any more they don't. I thought the utilities were deregulated (to an extent) years ago? I sure remember getting all the loads of advertising about switching electricity providers.

After using Google, I see that you are correct. It appears as if gas and electric deregulation was done on the state level, and at least half of the states have done so to a certain degree. E.g., here and here.

Edited by DarkWaters
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The other trick that is done quite often is to represent the company as a monopoly by defining the "market" in such a way that it appears that the player has a very dominant share. I always thought the Microsoft / Intuit acquisition that got nixed by regulators was a hoot because we suddenly had a "personal finance software" market. I like to think if it requires more than 2 adjectives to describe the market then its not a real market. For example, Microsoft is hadly dominant in the "finance software" market, nor is it dominant in the "software" market.

I think they actually do come close to being a monopoly, at least in the PC market. I think it's in the upper 90%'s and growing, so that's about as close to a monopoly as you can get.

How did they do it? In the two ways in which monopolies can exist: By force and by excellence. For an great example of monopoly through excellence, read Greenspan's exposition of the ALCOA antitrust case in "Antitrust." (CTUI, P.63) Judge Learned Hand's indictment of ALCOA is pretty applicable to Microsoft today.

The force argument requires an anti-Microsoft bias (which, luckily, I have). There have been many accounts of Microsoft stealing technologies from small would-be competitors over the years. In some cases from people trying to sell their ideas to MS, in other cases by just taking good ideas and calling them their own. (Apple devotees were especially irritated with the Windows 95 product, since they'd been using "Apple 84" for years.) Granted most cases could be chalked up to reasonable disputes over what constitutes I.P., but in at least one case (sorry I can't provide sources, but I'm sure they're all over the web), Microsoft weathered a civil case long enough to bankrupt the plaintiff, then bought the now-cheap company, and paid itself the hefty fine imposed by the court system. It is clear (to me anyway) that Microsoft used force in taking the ideas and efforts of competitors without permission, and that the government's lack of adequate response allowed them to do so.

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  • 2 years later...

I'm trying to find a connection between Boss Tweed/Tammany Hall, and Rockefeller/Carenegie monopolies. Did Boss Tweed have a role in their monopolization?

I also noticed that soldiers forcefully breaking up protests against their respective companies, which goes against "Laissez-faire" capitalism entirely.

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I'm trying to find a connection between Boss Tweed/Tammany Hall, and Rockefeller/Carenegie monopolies. Did Boss Tweed have a role in their monopolization?

I also noticed that soldiers forcefully breaking up protests against their respective companies, which goes against "Laissez-faire" capitalism entirely.

Depends on where the protests are held.

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Exactly, Greebo. Some gatherings that are described as "protests" seem like riots to me, and even if the protest is non-violent, that doesn't mean it is legal or rights-respecting.

Edited by FeatherFall
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So.. what was Andrew Carnegie's connection to Tammany Hall? Did he receive kickbacks?

What about John D Rockefeller, J.P. Morgan, and the other monopolists? Did they not lobby for kickbacks that were made possible by our government?

Here is something interesting about Rockefeller.

http://docs.google.com/View?id=dgtd3qdx_80hfsq9b73

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I was certainly aware that John D Rockefeller was not the evil guy people made him out to be, and that he pushes oil refinery to heights that would've been less possible in "perfect competition", but still.. I keep hearing that he lobbied for government aid. Perhaps the monopolization process would have been slower if this had happened.

Yeah, John D Rockefeller was certainly a successful guy, potential demand for corporate welfare aside

Edited by Black Wolf
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I was certainly aware that John D Rockefeller was not the evil guy people made him out to be, and that he pushes oil refinery to heights that would've been less possible in "perfect competition", but still.. I keep hearing that he lobbied for government aid. Perhaps the monopolization process would have been slower if this had happened.

Yeah, John D Rockefeller was certainly a successful guy, potential demand for corporate welfare aside

I haven't heard about Rockefeller lobbying the government for aid or help. In fact, he was pretty much hated by them with his Standard Oil.

As for J.P. Morgan, the government actually lobbied HIM for aid because of how successful his banking practices were. He once refused to loan the government money because they didn't have enough credit.

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  • 2 weeks later...

I have never really been convinced by the argument that very successful businessmen such as the rockefellers and the morgans were ever attempting to develop monopolies. they had not gained their status through government aid and they knew that they did not need government aid to continue to outdo their competition. however, if it is true that these powerful businessmen chose to switch the focus of their aims from honest means of money-making to an attempt at a monopoly then they would no longer be an example of true capitalism anyways. i agree with the argument that a monopoly can only be created through the use of government force... if you need a contemporary example of companies trying to achieve a monopoly just look at the ford and GM bailouts.. classic example

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