"How can we limit big business from running out competition while providing freedom? Doesn't this force the involvement of government? By addressing these issues, doesn't the government obstruct freedom?"~~Enrico Pallazzo
Adam,
I am beginning to think that our "history lesson" might be pretty extensive. I have also failed to mention the numerous questions I have about railroad companies. We read Barbara Freese's Coal: A Human History back in college. I've re-read portions of it since, but my understanding is that railroads, specifically the Reading, PA were buying coal mines. There's a whole section of Frank Gowen too. History remembers him for fighting the Molly McGuires, but he also started the first major industry-wide cartel with a price fixing agreement. He was also very cruel to his coal mining labor. I also have questions about the Southern Pennsylvania Railroad. Basically, the Pennsylvania Railroad bought a line in NY state to compete with the New York Central. So Corny Vanderbuilt, Andrew Carnegie and the Reading Railroad combine forces and buy a right of way across southern Pennsylvania to directly compete with the PRR.
The railroad was never completed because JP Morgan invited everyone to his yacht, told them this type of competition is bad for business, and brokered a truce where NYC got control of that small line in NY and PRR got the Southern Pennsy. In the 1930's the Southern Pennsy right-of-way was bought by the Pennsylvania Turnpike Commission and turned into the Nation's 2nd super highway. How can we limit big business from running out competition while providing freedom? Doesn't this force the involvement of government? By addressing these issues, doesn't the government obstruct freedom?
So many questions. I'm thinking that our chat might be pretty long, so I'm beginning to become hesitant to meet up during the week. I'm available Friday if you are able. Plus if we wait longer, I'll have more questions.
I'm glad you're willing to share your passion with me. I've never really been one to watch/read the news other then sports and I realized that I'm usually out of the loop during conversations about the economy or politics. I figure if I can get a grasp on what America is supposed to be founded on, I can direct my approval/disapproval in the appropriate places and develop my own opinions as opposed to following the crowd.
Enrico
Enrico,
"How can we limit big business from running out competition while providing freedom? Doesn't this force the involvement of government? By addressing these issues, doesn't the government obstruct freedom?"
Superb questions, all. Monopoly is another interesting and very important topic. Historically, whatever monopolies occurred did so a result of federal government actions, not in spite of or because of a lack of such action. Basically, if one was an aspiring monopolist one went to the federal government to lobby for legislation that made competition illegal. And it is occurring right now, as we type. With the exception of mineral and energy markets, it is impossible for monopolies to form in a truly free market environment. If a "big business" colludes with other business to set prices, they are increasing the temptation for other businesses to undercut their prices. It is impossible to convince other companies to stay within a cartel minus the threat of force. So what do they do? They make competition illegal. (Ever think: gee, if the government did not have its fingers in every little aspect of commercial life and society, there would be nothing in DC to attract those legions of lobbyists everyone complains about. If we really wanted to limit the influence of lobbyists on legislation, why do we allow our government that writes the laws to regulate every business under the sun? Less regulations = less lobbyists.)
This very thing happened with US Steel in the early 1900s. Elbert Gary organized a cartel of steel producers in the US and colluded to set prices. No competition was the gentleman's agreement. He held regular dinners at the Waldorf-Astoria hotel in NYC with the heads of 49 steel producers. It was a classic "monopoly" that was screwing American consumers. Teddy Roosevelt's Justice Dept officials even sat in on the meetings where prices were fixed. Yes, the great "Trust-Buster" was complicit in monopolized steel prices!
Eventually the cartel fell apart because the market, still free and unregulated by the government, provided enough incentive for members of the cartel to break off and undersell the cartel prices. Undercutting Big Daddy Monopoly paid handsome dividends. After the government started regulating the steel industry such competition was less likely and, here's the kicker, prices went back up on the consumer.
Gary, being a true monopolist and anti-capitalist, began lobbying the federal government to regulate the steel industry, even asking Congress to set prices. When at first you cannot monopolize without the government, try try again with the government and make competition illegal. Carnegie, too, started asking the government to regulate his industry.
A similar situation occurred in the meat-packing industry. Sinclair's book really had nothing to do with the fed government stepping in. The meat packers themselves had been lobbying the govt to regulate them!
And so it continues. GE has lobbied for years for the uber-regulative state of cap-and-trade taxation, as has DuPont. Phillip Morris continually demands stricter laws on advertising and packaging for cigarettes. They really don't care about the environment or the health of smokers; they simply do not want to compete in open honest capitalism so they leverage the power of government (which has the sole monopoly of force in society) to make competition more difficult or illegal.
I'm all about freedom and free society. That equates to free markets and the absolute minimum of government intervention in how we choose to organize our economy. (It is always our economy, that is, the market of consumers, producers, and savers. Government is the outside party.) But I really despise companies that partner with government to quell competition, which means they are screwing you, the consumer, and still call themselves "private companies." They are not. They are in collusion with government so that makes them corporatists, not capitalists.
Rant mode OFF. Sorry about that. Got a little fired up.
So to address your first question, there should be no limits on business. They cannot collude to monopolize without the power of government backing them or orchestrating monopolies on their behalf. Freedom is not limited and monopoly avoided. Even if companies could corner some market, if they raise prices beyond what the consuming public can spend, they will lose money. And if they raise prices too high, if the market is free enough and easy enough to enter as a producer and distributor, someone somewhere will see a profit incentive to come in and undersell the "monopoly."
If the market remains over-regulated, however, no such competition is likely as market entry is prohibitively expensive for the up start guys as it requires a legion of attorneys to hack through the mountains of regulations. That's a good thing for the established companies with the attorneys and lobbyists on retainer, a very bad thing for aspiring competitors.
Second question: Here's a quote from the book below: "It was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it"
And to your third question, yes, every time the government addresses any issue it of necessity limits freedom. Government cannot act without limiting freedom. Government necessarily holds the monopoly of force; civilized society could not exist without this arrangement. The question of how much of that is an absolute necessity is a different matter, but we too often forget that every government action, by definition, limits the freedom of society. As a dear friend would say, 'Twas always so, and 'twill always be.
I cannot make the 14th. Don't worry about more questions in the mean time. I'm having a great time here!
Many, many thanks for the discussion.
And here's another book recommendation: The Big Ripoff
. It is an absolute must read in context of this discussion.Adam
