| Chapter 2 MONOPOLIES "For here we are not afraid to follow truth wherever it may lead, nor to tolerate any error so long as reason is left free to combat it." Thomas Jefferson, third president of the USA and famous writer (e.g., draft author of the Declaration of Independence); in an 1820 comment on one of the ideals to base (what would become known as) the University of Virginia, which he (is considered to have) founded (Cunningham 344). PROLOGUE Our current belief in monopolies, and their ability to exploit people, must certainly rank well above belief in God. Indeed, the USA Congress has passed laws to protect the people from this menace. But, let me ask some simple questions. Were you ever in a classroom when the teacher said: "Today we will study historical examples of monopolies being prevalent in a free market?" Or when did you read a book that attempted to show the same? What do you think: in what country, and in what age in that country, did such monopolies prevail in a free market? Are you having difficulty with these simple questions? A quick dash to the library, to reinforce previous opinions, should prove frustrating, because research usually elicits vague information on these points. In a USA library, you may find discussions of the "robber barons," antitrust history, and a discussion of some of these antitrust cases, but not ready answers to the questions just posed. Generally, history books and encyclopedias will be supportive of anti-monopoly laws but will not supply the information to answer these questions. Again, in which country, in which age, did monopolies peak? Was it France in the mid 2Oth Century? Was it England in the late 17th Century? Was it Brazil in the early 19th Century? Or did the USA Congress pass antitrust legislation simply based on an unproven theory? To rephrase that question more meaningfully: did the USA Congress pass legislation restricting people's freedom based on an unproven theory? INTRODUCTION AND ASSERTION The public's common belief about monopolies is: without government intervention, monopolies will arise out of a free market by eliminating (or collaborating with) their competition, and then use their monopolistic position to exploit the people. The theme of this essay is that this is not how the real world works. The belief is a myth. To show that this assertion is true, I present five arguments. The first argument (considered the most powerful) uses the lessons of history. The second argument briefly references economic theory. The third argument uses a "burden of proof" rationale. The fourth argument attacks the self- contradictory nature of the exploitation belief. The fifth argument attacks the "ends justify the means" nature of these beliefs. Finally, additional discussions will address closely related issues and potential-rebuttal arguments. Besides the benefit of enhanced understanding, this essay may provide another benefit. One of the frustrating things in life, for many people, is the feeling of repeatedly being taken advantage of. They worry, as they mull over the price tags of desired goods, that the government regulators are not doing their job of protecting the public from unscrupulous businessmen who rig prices. It is frustrating to have these suspicions and yet not be sure what is happening. Although this essay (but more so others in this book) will confirm that you are indeed being exploited, the understanding of what is really happening, and the understanding of the limits on people trying to exploit you, should make life more relaxing. SCOPE AND ASSUMPTIONS The primary scope of this discussion is the potential for monopolies to arise and operate in free markets. A "free market" is defined, for these purposes, as a market (or full economy) without government or criminal intervention. Now, it is sometimes heard: "There are no more free markets"; therefore, it is important that you apply the definition in the previous sentence. The definition of "criminal intervention" also needs to be clarified. "Criminal intervention" is not necessarily the violation of a government's regulations or laws; it is the use of force, the threat of force, fraud, theft, trespass, etc., to violate people's rights. People's rights, in turn, are based on the fundamental "right to contract." So, when envisioning a free market, envision a non-violent society where the citizens interact with one another by mutual-voluntary agreements. The scope of discussion will not include indirect competition, such as between trucks and trains or between newspapers and television. The scope of discussion will also not include the role of patents. Other than eliminating these complicating factors, so as to simplify the situation for the enhancement of understanding, it is still assumed that people operate according to the dictates of human nature: there is avarice, charity, laziness, hard work, heroism, jealousy, intelligence, stupidity, scheming, planning, collusion, etc. The terms used are as commonly defined in dictionaries. Generally, a "monopoly" is defined as an organization having both these characteristics: 1) it exclusively (or almost exclusively) produces a certain product or service, and 2) it can arbitrarily set the price so that the customers must either pay or, if it is not a necessity, abstain. It is assumed that ... • you believe the identified misconception: without government intervention, monopolies will arise out of a free market by eliminating (or collaborating with) their competition, and then use their monopolistic position to exploit the people; • you have no answer for the questions posed in the prologue; and • no good will result, in the aggregate, from doing something bad (e.g., the "good" a thief accomplishes for himself, by acquiring stolen cash, is outweighed by the harm to his victims). Other assumptions will be explained within context below. PRINCIPAL ARGUMENTS The Lessons of History If you could not affirmatively answer the questions posed in the prologue, then clearly you have not seen direct evidence that monopolies have been prevalent in free markets. Therefore, you should not believe that such monopolies are a fact. The logic of the "lessons of history" argument has just been presented. However, the last sentence in the previous paragraph does not strictly meet the requirements of the rules of logic. That is because the reasoning is based on a negative argument: it has not been shown that monopolies cannot exist in free markets. By the strict interpretation of the rules of logic, all that can be said is that there is no proof that monopolies would exist. Yet, we insist that, from a practical point of view, pointing to the lack of evidence for monopolies is effectively a positive argument. Is this text flaunting the lack of historical evidence supporting the belief in monopolies? Yes. Is that justified? Yes. If such evidence existed, what is the probability that it would not be prominently included in history books? The probability is nil, because scholars have a propensity to present such material. If you have been a student in the USA, then almost certainly a perusal of your history books will show fairly prominent coverage of the "robber baron" era. That is an example of scholars eagerly pointing out improper actions of big business. We assert that scholars have a propensity to highlight such activity by big business. Doing so is a good service to the community, especially if big business acts unscrupulously or seduces public officials. However, the lesson the student should derive from history is not that big business is bad, but that political influence can be, and bribery and violence are, bad. In any event, the point of this paragraph is that scholars will prominently display any facts that would indict big business. There are differences of opinion about the extent of free markets. Still, if monopolies have not dominated some of the free markets in all of our world history, then it must be that the concept of monopolies is a misconception. Scholars are generally quite capable. Therefore, if it is true that they have a propensity to show the negative aspects of big business, such as unfair monopolistic action, then the fact that they do not show this evidence means that the evidence does not exist. (Our characterization of scholars is a generalization, of course; there are exceptions.) This "lessons of history" argument is complete. However, you are encouraged to visit a well-stocked library and verify that the most-commonly used history texts are vague about when and where monopolies were prevalent in a free market. If it is a USA library, you may also wish to check that the "robber baron" episode does not negate any of the conclusions stated here (e.g., bad things happen because of bribery of government officials, not because of free-market operations). Economic Theory The above statements about monopolies, though not widely disseminated, are not unique to this text. Two supporting works, which deserve respect (because of their true reliance on reason), and which are hereby recommended, are: • "Human Action" by Ludwig von Mises, and • "Capitalism: the Unknown Ideal" by Ayn Rand. Von Mises is the learned professor, while Rand is the brash philosopher. Though characterized as a treatise on economics, Mises' work is partly a philosophical work (indeed, he even takes a detour to present a "proof" that God does not exist). Von Mises' book is quite lengthy. The text below ("The Ends Justifying the Means") suggests an alternative to reading long books on philosophy or economic theory: exploiting principles. Burden of Proof Let us suppose that some people firmly believe that free-market monopolies will become prevalent, and that they pose a threat to the economic well being of the public. If the belief were true, then it would seem prudent for society to do something about the threat. Generally, the solution to this "problem" is for the legislature to pass laws and/or regulations to restrict the freedom of big business. Now, this essay cannot prove absolutely that monopolies won't someday become prevalent and harm the public. It cannot do so because the laws of logic say so. It cannot do so for the same reason that no one can prove the sun won't come up tomorrow morning. You cannot prove a negative. However, let us consider the question of the burden of proof. Freedom is a precious thing. If someone were accused of being dangerously insane, and if that were true, then it would be appropriate for society to restrain that person; such restraint, however, should be applied in the least offense way. Now consider this question: does the accused have to prove he is not a danger to society? Of course not; at least not in a civilized country. No, the accuser has to show that: 1) the person is insane, and 2) the person is dangerous. The burden of proof is on the accuser. Now, if there are people who claim that big business is dangerous to society, is the burden on big business, the author, or anyone else, to prove that big business should not be put under restraints? Of course not; at least not in a civilized country. Freedom is precious. The accusers have to show that: 1) monopolies will become (or already are) prevalent, and 2) that they are a danger to the economic well being of the public. The burden of proof is on the accusers. Will anyone present that proof? ... Is that a rhetorical question? Yes. Does freedom work? Yes. Big business, operating in a free market (unrestricted by anti-monopoly laws), cannot unfairly exploit the people as long as government officials are diligent and do not take bribes (either because of honesty or fear of prosecution). The anti-monopoly, or antitrust, laws are improper unless someone provides proof that they are a "necessary evil." Self-Contradictions The beliefs about monopolies include at least two self-contradictions. The first self-contradiction has to do with competition. It is widely -- albeit grudgingly -- accepted that free markets provide higher standards of living than other forms of social interaction. Competition is good; or at least it is good for our economic health. But the presence of a monopoly means, by definition, that there is no viable competition. Therefore, the goal of anti- monopoly laws is to ensure that there is competition. What does competition mean in this context? It means the striving for relative economic advantage within the workings of a free market. Can you enforce freedom? No, of course not. Can you enforce competition? No, of course not. Is there any real difference between those two questions? No, of course not. The second self-contradiction has to do with the right to contract. One of the (usually unstated) bases for antitrust laws is that someone can violate your rights when they don't do what you want them to, or when they do things you don't want them to do. In truth, no one can ever violate your rights that way. That is true even to the extreme limit: refusing to deal with you. To claim otherwise results in contradictions, and is illogical. To claim otherwise means that ... • people that mind their own business may be punished for doing so, • there is no logical way to determine if someone's rights are violated, and • peaceful relationships between people cannot be based on reciprocity. The author demands that anyone who disagrees with the above paragraph immediately send the author one thousand dollars. If you don't comply, then you are not doing what the author wants, and he therefore claims that you are violating his rights, and you should be prosecuted and severely punished. Of course, since the author does believe in the conclusions in the above paragraph, there is no reciprocity, so don't bother to demand a thousand dollars from him. Although the preceding paragraph may seem ridiculous out of context, in context it presents a serious point: the conception leads to contradictions. Opponents of these conclusions would likely wish to dismiss the above paragraph, but they cannot state fundamental rules that explain when it is proper to force someone to do what they do not want to do. And if they cannot state the rules then they are not using reason to justify their position. To be reasonable they must answer: what are the fundamental rules that determine when it is acceptable to force someone to do what they do not want to do? The Ends Justifying the Means The public generally views anti-monopoly and antitrust laws as just restrictions on big business. Who cares about them? But consider: such laws mean that these businesses are not free to make the agreements they believe are in their interests. The right to contract is denied them. But, once the right to contract is denied to one group, no one's right to contract is safe. The precedent has been set. Does society need to place limits on the right to contract? Perhaps contracts should not be sacrosanct because society must be protected from big business. But what does it mean to protect society? It means: putting some people under (partial) restraint. They are not free to make whatever contract they want, with whomever they want. Stating the situation that way makes it seem that anti-monopoly laws must be classified as a "necessary evil." The only trouble is: there is no such thing as a "necessary evil." Good never comes out of bad. The ends never justify the means. No good will result, in the aggregate, from doing something bad. It is never necessary to pick the lesser of two evils. Never. If the above paragraph is true -- and it is -- then you, the reader, can skip reading long books on philosophy or economics. If anti-monopoly or antitrust laws restrict anyone's freedom, then that is a "bad." No good comes from bad. Therefore, in the long run, society will be worse off with such laws. That is all you need to know to decide the issue. The logic is irrefutable; or, it is provided the previous paragraph is accepted as true. Can it be proven that no good will result, in the aggregate, from doing something bad? As stated previously, no one can prove a negative. It should properly be listed as an assumption. However, the clarifying question can be asked: are there any known exceptions to this claimed principle? Can you, the reader, think of an exception? Given that the principle is properly interpreted, there are no widely published example exceptions. The classic difficult ethical questions, such as those that arise in emergency situations when you have to decide about placing yourself in danger to save another, are not an exception as long as reciprocity applies. On the one hand, if the principle were not true, we should shudder as we contemplate the consequences. On the other hand, since it is true, we can marvel at the consistency of truth. We can marvel that the laws of proper human interaction are just as consistent as the laws of physics. We can marvel that understanding a few principles allows us to draw proper conclusions about many specific issues without needing to digest the details in long books. Therefore, protecting the "right to contract" will never -- repeat, never -- result in overall bad consequences. Violating the right to contract will always -- repeat, always -- result in bad consequences; and indeed, it has. Everyone should be allowed to mind their own business. That is freedom. A public that favors restricting some people, who would otherwise just mind their own business, will be the poorer for that violation of principle. We should feel obligated to protect each other's freedom. Even if it were true that we are not bound by such obligation, allowing the precedent (of violating someone else's freedom) to stand means that our own freedom will be difficult to protect. RELATED DISCUSSION The primary arguments have been completed. Ancillary discussions are presented here to facilitate the reader's complete understanding. Not all the following statements will be justified, and some unjustified statements have no widely recognized reference source. There are indeed numerous monopolies operating throughout the world, including within the USA, and almost all of them unfairly exploit people. However, these monopolies are artificial in that they are based on political power, or, in a few cases, based on criminal use of violence. In much of the world, it is not possible to operate a business without paying off the police or other officials. In many places, this unfortunate situation is exacerbated by bribes used to keep out competition. The role of the police, then, is completely distorted. (The worst aspect of this is that the public loses sight of the true role for the law and the police, and reform is difficult no matter who wins an election.) Scholars and economists do occasionally spot monopolies that were able to evolve to their predominant status within the context of a (relatively) free market, instead of by (the more common case of) exploiting political influence. However, these must be understood in the context of a large complex economy. The rule is that "free enterprise" will not only optimize the standard of living for a given number of competitors, but it will optimize the standard of living even further by also optimizing the number of competitors. The number of competitors will be the number that maximizes the standard of living: too many competitors would reduce efficiency while too few would cause "too large a profit" for these producers. The number of competitors will -- as a rule -- be inversely dependent on both the amount of startup capital required and the degree of technical or other innovation the industry is experiencing. So, in industries where the same products are produced year after year, with little or no change occurring, the number of competitors will diminish. Eventually just two competitors will usually remain. Furthermore, according to Von Mises' economic analysis, such stable situations will result in nil profits for these producers. In any event, in a large diverse economy, with many industries, it is actually quite likely that a few industries will, from time to time, transition to a single producer. For, if there are indeed only two producers left, and not much profit is being made, it should not be unexpected that a natural calamity, a strike, the need for more capital, or just the general slippage of efficiency, will temporarily knock out all but one producer. This does not change the fact that monopolies will be relatively rare in a free dynamic economy. A reduced number of competitors could make collusion practical. In an economy with no anti-monopoly laws, in an industry that is experiencing very little technical, production method, marketing technique, or other innovative change, the number of competitors will diminish, often until there are just two left. Why can't they then agree on a price between themselves? Actually, it would be quite sensible for an executive of such a company to recommend just such a truce, arguing that if something like that is not done, then one or both companies will eventually get in serious financial difficulty. The point is, the two companies must be careful not to set the price too high otherwise new competitors will enter the market. A limiting key factor for new competitors is the startup costs involved. This includes the costs associated with the time it takes the employees to acquire the necessary skills for the product or service. So the survivors, in an otherwise unchanging industry, can give themselves a little extra profit by agreeing to an understanding; the degree of this profit will vary considerably from industry to industry, depending on potential competitor's startup costs. Such understandings are healthy for the economy: they improve society's standard of living because they result in optimized capital investment. Such arrangements may provide stability, although human nature -- rivalry, jealousy, miscommunication, etc. -- may undo the arrangements. In industries that otherwise are not experiencing technical, production, or marketing changes, the lack of such agreement will lead to financial desperation and hence business instability. In any event, the pervasiveness or stability of such arrangements will not change the consequences described above: a practical economic optimization that also respects everyone's rights and is consistent with human nature. It should be noted that there are many qualifiers to the above rules regarding the number of competitors. For example, there are the issues of ... • product differentiation, • competition between substantially different products, and • consumer indifference to getting the best buy. At the beginning of this book the reader was encouraged to consider this reading as an intellectual adventure. Now consider the thrill -- whether you agree or not -- of a society in which what the executives of businesses do is ... well, their business. They are free to do whatever they want. The police will only investigate a situation in which someone -- a true victim -- claims their rights have been violated; someone else doing, or not doing, what that person wants, does not make that person a victim, and such action is therefore not a crime. There are no "unfair business practices" unless someone's rights have been violated (e.g., robbery, fraud, etc.). No one has to worry about collusion, because the free market will take care of it. No agents with cameras and tape recorders are needed to spy on businesses. No one cares what the companies' internal memoranda say -- that is their business. No court has to make highly subjective determinations of what is legal and what is illegal. It is a thrilling concept. Isn't it intellectually beautiful? Enforcement of anti-monopoly laws must be arbitrary and subjective. The decision to prosecute will be a political decision. For example, it may seem simple to pass a law making a market share above fifty percent illegal. But consider this question: how different do products have to be before they are not classed together? Doubtless, for many products, voluminous regulations are required to define the "line in the sand," especially with changing technology. In different societies throughout the world, the people and officials will not differ much in their opinion about whether a given action is a violation of murder or theft laws. However, there will be considerable differences of opinion about actions that may violate anti-monopoly laws. For example, is a lone one-man general store in the wilderness, far from any town, a monopoly? If so, how far away does the nearest store have to be? How many hours a day, and how many days a week, does that nearby store have to be open? If the other store suddenly moves away, can the general-store owner immediately be charged with a crime? Yes, anti-monopoly laws, and their enforcement, must be arbitrary and subjective. Although the public may sometimes resent their actions, preservation of the right of any-sized businesses to conduct business however they please will, in the long run, in the aggregate, over all products and services, result in a good: the improvement of the average standard of living. The passage of anti monopoly laws, or even anti-business laws, may satisfy the resentment of a large portion of the public, but such psychological benefits should not be considered "a good." Near the beginning of this essay there was a reference to the rivalry between the intelligentsia and (the leaders of) big business. One of the consequences of this rivalry has been regulation to keep big business in check. It would seem reasonable that the leaders of big business would prefer a society where the intelligentsia never criticized their actions. Given that they cannot have that, the present situation is preferable for their interests. That is because the regulations are quite effective at keeping small competitors from getting a good start (even when such a result is not the intent of the regulation). The intelligentsia, rather than punishing big business, is actually inadvertently protecting big business. The antitrust laws and regulations have set critical precedents that now protect big business. For example, complex regulations impose a proportionally heavier burden on small businesses than large. The legal precedents were set because the common concept of monopolies -- if accurate -- can only mean that freedom does not work. It has been stated, in this essay, that the intelligentsia has a propensity to both emphasize certain information and avoid certain (other) information. An even more sweeping statement will be made now: this propensity transcends time and space. Similar characteristics, based on the same psychological motivations, can be observed in other ages in various parts of the world. For example, consider the tensions in the middle ages when Europe started construction of the great cathedrals: these complex projects needed experts -- now called architects -- who did not fit neatly into the commonly-accepted classes of people, and who elicited the hostility of the intelligentsia merely by their presence. Similarly, through the rest of time, it will be difficult for scholars to feel passion for the cause of (economic) freedom, and especially for freedom for business people, despite their insistence that scholars should be free to do their work as they please; such is human nature. If you consider yourself to be a member of the intelligentsia, should such statements offend you? No one can stop you from being offended, however, you should consider if statements of fact should properly be a cause for being offended. On the one hand, it is a fundamental principle that statements of fact should not generate offense or hostility. But, on the other hand, it is also human nature (and not unreasonable) to take offense at someone who unnecessarily points to negative aspects of your behavior. For purposes of this essay, it was quite necessary to point out that history books are vague on certain aspects of the issue of monopolies. Such defects notwithstanding, the intelligentsia, and history scholars specifically, should be proud of their role in society. The worth of their work is indeed inestimable; it is worth far more than the monetary remuneration scholars have received for creating our knowledge base. POTENTIAL REBUTTAL ARGUMENTS Each of the following paragraphs starts with a rebuttal-type question that is addressed in the body of the paragraph. How can you allow big-business executives to engage in collusion? In summary, such executives are acting like free people, and freedom is good. An adjunct to that answer is that society must respect the right to free speech. Any two people have the right to talk, and give their opinion, about the weather, religion, politics, and, yes, business. If a business executive believes a group of companies should all charge a certain amount for their products, he or she has the right to say so. Calling such speech "collusion" should not make the speech a crime. Freedom of speech is not a privilege only for the intelligentsia. Scholars should be free to call for Communism and businessmen should be free to call for fixed prices. Free speech is good, even though many talk nonsense. Do the antitrust prosecutions in the USA prove anything? Yes, they prove that the USA has arbitrary and subjective political trials. Does your real-world experiences tend to negate all the above arguments, though they appear logical and reasonable? We have all heard the universal complaints about "not enough competition." Many of us have seen, for example, airline tickets cost more for shorter distances than they do for longer distances. Such counter-intuitive instances can be explained by economic considerations related to the level of traffic through various airports. Usually the apparent "lack of competition" is the result of constraints on business that are not immediately obvious, and often these constraints are not really true economic constraints but artificial constraints caused by government intervention in the economy. These artificial political constraints tend to be pervasive, and are largely unseen because there is no way to compare the way things would be without them. An example of an invalid political constraint would be regulations that prevent insurance companies from differentiating insurance rates based on the locale. An example of a valid constraint, caused by locale, would be a marina at the only suitable site near a population center. The owner of this well-sited marina will be able to charge higher prices than other less well-sited marinas. If free markets work, then why are prices higher in cities then in the country; shouldn't the concentration of customers lower prices? Common city- government regulations aside, the costs associated with (local) real estate are a major component of prices. Aren't the opinions and actions of scholars too diverse for generalizations? Generally, yes, however, there is consistent vagueness regarding monopolies in history books, though these history books include contributions from many historians. SUMMARY AND CONCLUSION The concept of monopolies includes contradictions. Common legal actions taken to protect society from the supposed menace these monopolies present restrict people's freedom, and yet the burden of proof that there really is a threat was never placed on advocates of anti-trust laws. It is impractical to adequately define anti-trust laws, though such is not the case for valid laws; anti-trust cases have to be turned over to prosecutors and judges who will make arbitrary decisions. Supposedly, the anti-trust laws are "the lesser of two evils;" but a real-world society never has to make a choice between two evils. People argue about whether belief in a deity is based on blind faith. Is belief in free-market monopolies based on blind faith? There is a good reason why history books do not tell in what part of the world, and in what era, free-market monopolies have been prevalent. Free- market monopolies are a myth. And governments do not need to protect the public from these mythical free-market monopolies. Such "protection" restricts the people's freedom. Business people should be allowed to "collude" for the same reason scholars should be allowed to meet and publish. We do not have to choose between a just society and a prosperous society. Freedom is a good in itself; and, fortunately, allowing people to enjoy their precious freedom will not result in any bad consequences in aggregate. Freedom works. END |
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