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The Making of Monopoly

Article by David D’Amato.

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Google was in the headlines again this week, this time to counter criticisms that the company has achieved “monopoly power” as against competitors, putting consumers at risk. The company’s chairman, Eric Schmidt, was the subject of questioning this week before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights.

In his testimony, responding to questions from Senator Herb Kohl, Schmidt admitted that his company was “in [the] area” of a monopolist. Monopoly: the word itself scares people and seems to offend the delicate principles that form “the American way” of competition and free enterprise. Government, it is often imagined, must protect these things from the encroachments of greedy capitalists coveting a monopoly position.

But what is the source of monopoly power really? And further, does the state stand in to protect us from it, or does the state play some other, less benevolent role in the economy?

Nineteenth century Americans, particularly anarchists like Benjamin Tucker, entertained none of today’s groundless illusions about the power relationships existing between and linking influential corporate interests and the state. Rather they developed a more or less accurate picture of the ways that the institutions of law and government sculpted the economic structure of society, allowing favored business actors to exploit the productive.

Business and government, they understood, were not foes locked in a battle over public policy, but were more often allies in a project geared to building special privileges for entrenched commercial interests. Attempting to outline was he saw as the most pervasive and significant forms of coercive state intervention in economic affairs, Tucker set forth four “class monopolies.”

Implicating the legal frameworks surrounding money, land, tariffs and patents, these monopolies stood opposite the “Manchester doctrine,” one of genuine laissez faire, without the state tipping the scales in favor of capital. Though Tucker detailed his four monopolies over 120 years ago, his insights remain relevant, identifying a collusion that endures in the economic system today.

Tucker argued that the most important monopoly, the one with the most “evil influence,” was the money monopoly. This privilege consists in the state’s prevention of competition among currencies, established through legal tender laws that, as Tucker said, “mak[e] it a criminal offense to issue notes as currency.”

Add to that other obstacles — things like minimum requirements for bank capitalization and certificates of need for new banks — and state intervention to this day effectively wipes out the kinds of competition that would allow the ordinary, working people access to credit. With the barriers to entry surrounding the credit market removed, Tucker contended, the rent-seeking of the banks and the tolls it produced would almost completely dissolve.

Next Tucker assailed the land monopoly, the state’s forcible annexation of huge swaths of land through methods other than “personal occupancy and cultivation” (i.e., actual homesteading). By enforcing for its favorites claims to land that in fact amount to theft, the state artificially reduces the supply of usable land. Hedging in and monopolizing land in this way allows the privileged to institute a levy upon the use of land that they don’t rightfully own in the first place.

Tucker fingered the tariff monopoly, protecting domestic companies at the expense of consumers, as the third of his big four. Tucker was careful to observe — what is still true today — the fact that protectionism in its various manifestations is intimately bound up with manipulations of the money supply. Today, as in Tucker’s time, protectionism creates a semblance of safeguarding the American worker.

Nevertheless, however compelling such an argument is within the present version of capitalism, in the absence of the other monopolies (most especially that in money), any supposed need for tariffs would quickly fade away.

Finally, Tucker spotlighted a form of monopoly privilege that is at the center of the Information Age economy, one that provides a prodigious part of the capital base for virtually all of today’s most powerful corporations. Though Tucker limited his discussion to patents, intellectual property rights in the form of both patents and copyrights allow big business “to exact tribute” for the use of the “natural wealth” of information and the scientific facts of nature.

Genuine free markets constantly undermine monopoly, pressuring business to respond to the sum of millions of freely and voluntarily made decisions. What we have today is no free market; it is the system Benjamin Tucker described, simply updated for the passing of over one hundred years. To be free from the state altogether is to be free from monopoly, from the dangers of avarice that we see all around us today.

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