Here’s the continuation of my response to some of (Blonde’s) comments on a recent post. She wrote:
Firstly, the definition of a monopoly is the exclusive possession or control of the supply or trade in a commodity or service. Thus any competition, no matter how limited, could be argued as a negation of the term.
First, be careful not to define your argument out of existence. There are no examples of businesses or governments that have such exclusive control over a commodity or service that there is literally no competition or substitute. You think there is? Fine. Name it, I’ll come up with a substitute product—a competitor, “no matter how limited”– and there goes any claim to monopoly.
Now, in real life, that would leave us little to talk about. Again, when people discuss monopolies, they are talking about firms with at least one competitor (however weak) that produce a product with at least some substitutes (however imperfect), but still have a lot of price control (a.k.a. “monopoly power”).
There will always be natural monopolies, even with government regulation, but I can’t think of an example where there exists absolute monopolies under government regulation, at least in a comparative sense (government regulation vs. lack there of).
As I explained in part one, governments often make it easier to gain monopoly power. Robert Fulton had a monopoly on all steamboat traffic in New York– a monopoly granted by the state (it was the subject of a historic Supreme Court decision). AT&T had a legal monopoly on most types of phone service for roughly a century. My dad’s full of stories about the high-tech phone services that were blocked from the market for years because they would’ve interfered with AT&T’s monopoly. The railroad industry of the robber baron era received massive land grants and cash subsidies, which often allowed the bigger railroads to consolidate monopoly power. Monopoly power is more likely to be created by government regulation than by the lack of government regulation.
You can’t think of an example of “absolute monopoly” under government regulation? I can’t think of an example of anything close to an absolute monopoly without government regulation.
Free markets work much like natural selection, and it tends to maximize profits of the powerful while extinguishing competition.
Firms intend to maximize profits and intend to extinguish competition, whether it’s in a free market or not. However, the tendency in free markets is to whittle away what economists call “economic profits.” When actual or potential competitors see excess profits, they tend to swim towards the profits like sharks to blood. The existence of and potential for competition make it very difficult to maintain economic profits in the long run.
But, you might say, what about industries that naturally aren’t competitive? Well, if the market is unregulated, or not too heavily regulated, someone, somewhere usually finds a way to compete for those profits. Somebody will develop something that serves as a substitute. They aren’t going to just sit there and let Uncle Moneybags rake in the cash unchallenged.
These are tendencies. You may be able to find some exceptions, but the tendencies of freer markets are toward efficiencies that more regulated markets have great difficulties achieving.
I’m not educated enough on the topic to declare an outright no-capitalism approach, but I think unregulated capitalism does not work. Unregulated capitalism depends on the concept that people are rational with regard to money management and purchasing. But this doesn’t happen, people are emotional and irrational with regard to economics and it’s in part why the market crashed in 2008. It’s why people don’t save. It’s why we need economic regulation for capitalism to function at its highest capacity. Simply put, people don’t correctly calculate value and self-interest and entire markets fail to as well.
I… I don’t know where to begin. Since you made vague assertions (and since it’s getting late), I’ll respond in kind:
I contend that regulation was more of a factor in causing the 2008 crash than deregulation was, partly because there was virtually no deregulation. I can accept the argument that poor regulation led to the crash, I refuse to accept the argument that a decline in the amount of regulation did.
The idea that economic regulation can make up for people’s mistakes is an incredibly vain one, hence the title of Hayek’s The Fatal Conceit. Keep in mind that the term “market” is a metaphor for countless buyers and sellers engaging in hundreds of millions of transactions a day. Do you know better than all of them combined? Do you trust yourself to vote for someone who knows better than all of them combined? Do you trust them, once elected, to design just the right regulation to correct the mistakes all the little people make?
Markets tend to do a remarkable job of regulating themselves– if they’re allowed to do so. Markets are far better at calculating value and determining self-interest than government regulators are– if they’re allowed to do so. Markets work when people and firms are allowed to reap the rewards of their success and suffer their losses. Unfortunately, firms and governments have historically pushed for regulations that prevent firms and people from suffering their losses, which means the market isn’t being allowed to work its magic.
I have to leave it there tonight. The brain is fried and requires sleep. Must edit tomorrow.
It may be that I have misunderstood your argument. If so I apologize and humbly await correction or elucidation. It may be that you know what you’re trying to say, but your argument suffers from not having been taught microeconomics by a particular teacher with a barbaric yet soft persona. Ask your friends; you missed out. I recommend signing up for a micro class at your local university and making sure your prof isn’t a total yutz.