What is antitrust?

Anti-trust are non-objective laws that punish trusts (business enterprises, corporations) for being successful, i.e., dominant.

To quote philosopher Ayn Rand writing in “Antitrust: The Rule of Unreason” Voice of Reason,

“The alleged purpose of the Antitrust laws was to protect competition; that purpose was based on the socialistic fallacy that a free, unregulated market will inevitably lead to the establishment of coercive monopolies. But, in fact, no coercive monopoly has ever been or ever can be established by means of free trade on a free market. Every coercive monopoly was created by government intervention into the economy: by special privileges, such as franchises or subsidies, which closed the entry of competitors into a given field, by legislative action…The Antitrust laws were the classic example of a moral inversion prevalent in the history: an example of the victims, the businessmen, taking the blame for the evils caused by government, and the government using its own guilt as a justification for acquiring wider powers, on the pretext of ‘correcting’ the evils.”

What is a monopoly?

A monopoly is defined as 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 economic competition in the marketplace, or did one obtain it by political pull, i.e., lobbying?

If such status is gained by competition in the free-market then the monopoly is good. If such status is gained by using the government, to force one’s competition out of business, then the 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 harmful monopoly under capitalism is impossible.

If one considers a monopoly as by definition evil, then only “businesses” that obtain their market share by having their competition outlawed (as the U.S. Post Office does) can be called a monopoly.

The key to a proper discussion of monopoly is to discontinue the equivocation of the term monopoly–that is to discontinue to use the term “monopoly” to refer to two mutually exclusive concepts – a company formed by economic power vs. a company formed by political power – if a monopoly is going to be regarded as evil.

Observe what is evil here: the act of using government force to intervene into 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 from a single superior competitor. The criterion of judgment is: is competition (the freedom to produce and trade) outlawed or regulated in some respect or not?

There are two different concepts denoted by the term monopoly: (1) a company that has earned 100% share of a given market  (i.e., Microsoft) or (2) a company that has not earned its 100% market-share, but instead had the government outlaw its competition (i.e., US 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 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 good or evil depending on how they are formed. If formed according to the laws of the free market — capitalism — they are good. If formed through irrational political policies, they are evil.

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.

As evidence, witness 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 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 businessmen. If this is how he achieves his monopoly, then it is in no way harmful. Just because something is a “monopoly” — a single agent in a specified area — does not make it evil.

What is the base of the antitrust laws?

The economic foundation of the antitrust laws is the socialist myth that unregulated, free-market results in the formation of coercive monopolies. (Eventually, through ‘historical necessity,’ they will form one big business which the ‘proletariat’ will take over with the establishment of communism.)

The political foundation of antitrust laws is that the individual does not have a right to liberty and property, but only holds property by the permission of the state.

The ethical foundation of the antitrust laws is the doctrine of altruism/collectivism that holds that the successful should sacrifice for others, and if they do not, they should be forced to do so.

 

Don’t the antitrust laws stop monopolistic practices?

No. All harmful monopolies from the old AT&T monopoly to the U.S. Post Office monopoly were created by the state. The U.S. Post Office, for example, maintains its monopoly on the lucrative first-class mail market by having the state outlaw its competition.

Take for example Judge Learned Hand’s indictment of ALCOA. What ‘crimes’ was ALCOA punished for? To quote Judge Hand:

“It was not inevitable that it 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.” [Alan Greenspan, “Antitrust” published in Ayn Rand’s Capitalism: The Unknown Ideal]

The government punished ALCOA for being too good a company, too competent in its management, and too successful (profitable) in its outcome.

What about Rockefeller’s Standard Oil monopoly?

The government punished Standard Oil for dropping the price of oil more than half.

Standard Oil accomplished by buying up competitors to gain more significant economies of scale, lowering their production costs, enabling them to lower their prices while increasing their profits: a win-win for Standard Oil (higher profits) and their customers (lower prices). By taking over inefficient refineries and lowering prices, their inefficient competitors who remained were unable to compete successfully.

Their competitors were free to enter the market and compete, but because they were not as productive they could not ‘win,’ and so under antitrust ‘Standard Oil’ was punished for being too successful.

Writes Dominick Armentano [professor of economics at the University of Hartford] on the issue of Standard Oil “monopoly”:

“The little-known truth is that when the government took Standard Oil to court in 1907, Standard Oil’s market share had been declining for a decade. Far from being a ‘monopoly,’ Standard’s share of petroleum refining was approximately 64% at the time of trial. Moreover, there were at least 147 other domestic oil-refining competitors in the market — and some of these were large, vertically integrated firms such as Texaco, Gulf Oil, and Sun. Kerosene outputs had expanded enormously (contrary to usual monopolistic conduct); and prices for kerosene had fallen from more than $2 per gallon in the early 1860s to approximately six cents per gallon at the time of the trial. So much for the myth of the Standard Oil ‘monopoly.’ “