Monopolies Under Capitalism

A monopoly — a single agent in a specified area — is judged good or evil by how it obtained its market share: by economic freedom or by political coercion.

A monopoly is a single seller in a given industry (appropriately defined).

Being a single seller, by itself, is not good, nor evil — it depends on how one obtained that single-seller status. Did one obtain a monopoly by free economic competition in the marketplace, or did one obtain it by political pull, i.e., cronyism?

If such status is gained by competition in the free-market, then such an economic or productive monopoly is good.  If such status is gained by using the government to force one’s competition out of business, then such a political or coercive monopoly is evil. The first is called a productive or economic monopoly; the second is a political or coercive monopoly.

As all political intervention (initiation of force) in the marketplace is outlawed under capitalism, a coercive monopoly is impossible under capitalism.

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However, though a monopoly denotes a single seller, some regard all single sellers as connoting something sinister, regardless of how they are formed, simply because they are the only seller in a given market (or the company is dominant in a given market). Under such a viewpoint, a monopoly, by definition, is evil.

What such a viewpoint ignores is what is evil here: the act of using force to intervene in the economy. It does not matter whether the government uses its power to outlaw competition to “protect” a single business, or to benefit a group of one hundred companies against a single superior competitor. The question that matters is: is the freedom to produce and trade outlawed in some respect or not? Is it (1) a company that has earned a 100% share of a given market  (i.e., Microsoft) or (2) a company that aquired it’s market-share by having the government outlaw its competition (i.e., U.S. Post Office). The first (a non-coercive, economic monopoly) is to be praised, and the second (a coercive, political monopoly) is to be condemned.

By equivocating on the term monopoly and keeping it ambiguous, it becomes an anti-concept so that: a company that has earned a 100% share of a given market is morally condemned because of its size and success. Such are the dangers of confusing economic power (Microsoft’s power of production) with political power (the Post Office’s power derived from coercion).

Monopolies are not intrinsically evil (big is not inherently evil), nor are monopolies subjectively evil (good or evil judged by public vote, or polls); monopolies are objectively good or evil depending on how they are formed and behave. If they are formed and act according to the laws of the free market — capitalism — they are good. If formed through irrational political policies, they are evil.

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How are harmful monopolies created? The sole source of harmful monopolies is the government, which is the only agency that has the power to force competitors out of business, i.e., it is the only agency that has the power to outlaw (i.e., regulate) competition.

Examples of harmful monopolies include the United States Post Office, which makes it illegal for anyone to charge less than 34¢ for first-class mail (one entrepreneur attempted to compete by charging 5¢ — he did not get far). Other examples include the East India Company of the 17th and 18th centuries, the American Pacific Railroads of the 19th century, and the AMA’s monopoly over the prescription of medicine in the 20th century.

Only the government can legally physically force competitors out of markets, or establish harmful monopolies through the granting of state franchises. Both actions are a violation of individual rights since such state franchises prevent those who do not have “political pull” to enter the state-regulated industry. State franchises are an insurmountable barrier to entry–a barrier created by the government.

The only “force” a capitalist can use to put his competitors out of business, is the “force” of providing a better product at a lower price as judged by those who purchase his products — such is the “power” of the capitalist. If this is how a business achieves its market share, then it is in no way harmful.

Capitalism FAQ

Intellectually “chew” the ideas brought up in the tour by exploring the Capitalism FAQ (Frequently Asked Questions).

 

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