Monday, 15 May 2006

Cue Card Libertarianism - Monopoly

Monopoly: n. exclusive domain over the production or provision of a given good or service.

Coercive monopoly: n. exclusive domain over the production or provision of a given good or service that is maintained by government force.

The difference between these two very different things is as little understood as are the reasons that some companies come to claim near-dominance. But the difference is crucial.

The claim by statists that a free market inevitably leads to monopolies is a classic case of the inversion described under Laissez-Faire; an inversion in which the market is distorted due to state intervention, and the market is then blamed for the distortion that results.

True monopolies are creations of the state: there has been no company in history that has been able to maintain exclusive domain over all of the production or provision of a given good or service without the assistance of the state.

If true monopolies offend you, then it's government intervention you should abhor. The state will exercise its own monopolies, as with the old Air New Zealand, Post Office, or Producer Boards, or the present electricity lines 'business' and roading network, where other parties are prohibited by law from entering the relevant field; the state may confer monopoly status on a chosen private firm by issuing a charter or an exclusive franchise; or the state may boost favoured firms into positions of market dominance by means of subsidies, tariffs, quotas and other forms of artificial assistance and protection. That is a true coercive monopoly.

However, a 'monopoly' that emerges from the cut and thrust of competition in a free marketplace to achieve near dominance purely by its own efforts deserves its dominance by dint of the outstanding service by which alone it can achieve it; such a company has not been granted its position by state charter, but by consumer choice.

Maintaining such a position of voluntarily-maintained near-dominance in a market is not easy; as long as the field remains open and coercion and fraud are prohibited it is in permanent danger of losing that dominance.

Bigness as such is not a menace; state coercion that creates an artificial bigness or barriers to entry, is. 

Statists who erroneously fault the free market for producing monopolies are curiously staunch in their defence of existing state monopolies, and have taken to using the argument that certain fields are 'natural monopolies.' This may be translated as: “Whatever fields are now monopolised by the state are natural monopolies, therefore the state should continue to monopolise them.”

This argument is absurd on its face. That there are technical difficulties or problems in de-monopolising certain fields, e.g. roads and electricity, is a legacy of the state’s monopoly, not something intrinsic to the field. In most cases, however, there are not even technical obstacles to deregulation, just the knee-jerk moral objections of hidebound socialists, which have been eloquently quashed by deregulation’s actual fruits. Anti-Trust Laws in the United States and laws in New Zealand that enforce competition by state force -- laws that purport to 'promote competition' by preventing so-called 'anti-competitive behaviour' -- these both allow for the most vicious statutory violations of accepted legal and judicial norms in the semi-free world.

Under these laws, citizens cannot be sure beforehand what constitutes a crime, and under these laws, citizens guilty of no more than running a great business have been jailed. Charging a lower price for one’s products than a competitor has led to prosecution on the grounds of unfairness; charging the same price as a competitor has led to prosecution on the grounds of collusion; charging a higher price has led to prosecution on the grounds of exploitation of the consumer.

Such is the Alice-in-Wonderland world of Antitrust.

A truly 'natural' monopoly or near-monopoly – ie., an unsubsidised, unprotected victor of unregulated competition enjoying near-dominance in their field – is to be applauded: while it lasts! And where it really does exist!

But a coercive monopoly--a creature of the state who could only survive under its wing--that's where your real opprobrium should be directed.

This is part of a continuing series explaining the concepts and terms used by New Zealand libertarians, originally published in The Free Radical in 1993. The 'Introduction' to the series is here. The 'Cue Cards' will be published as a set at the completion of the series.

  TAGS: Cue_Card_Libertarianism, Economics, Libertarianism, Politics, Politics-NZ


  1. Wonderful! I can't wait for my next arguement with a self-termed "individual anarchist" who constantly lumps the two concepts you discuss into one big EVIL. Any tips on how I can smash his position that government's support for private land rights is not the same as a government enforced monopoly on a particular product/service? He usually weasels around it with claims of economic rents - which just puts us in a vicious circle.

  2. I'm obviously too dim to understand Joy's post. :-(

  3. No caskman, you're not. The person I argue with is a mutualist, no matter what claims he makes to the contrary and he regularly confuses people - or as my son would say, makes my brain sad. He insists that land is owned in common, and that private property rights are nothing more than government enforcement of the landlord's monopoly on economic rent. It's rubbish, but arguing with him his helping me narrow down my definitions of various principles about rights, ownership, and government.

  4. This post doesn't explain Microsoft's domination with inferior products.


1. Commenters are welcome and invited.
2. All comments are moderated. Off-topic grandstanding, spam, and gibberish will be ignored. Tu quoque will be moderated.
3. Read the post before you comment. Challenge facts, but don't simply ignore them.
4. Use a name. If it's important enough to say, it's important enough to put a name to.
5. Above all: Act with honour. Say what you mean, and mean what you say.