Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Democracy is the road to socialism.”     Karl Marx

February 16, 2006

Government Created Monopolies

by Eric

Another point, in keeping with our ongoing discussion of economics and monopolies, that I have made is that government intrusion into, and distortion of, the market creates monopolies. I have argued that folks of a libertarian or classic liberal mindset should not accept these “private monopolies” as okay becuase they are not directly created by government fiat. In fact, anarcho-capitalist thinking would dictate that a monopoly, regardless of origin, is anti-liberty. A monopoly becomes, in effect, a quasi-government through their ability to dictate standards, prices, regulations and much more. they can do this because they control resource scarcity, rather than the market controlling. The beauty of a market is that no one is in control. Invisible market forces control resource scarcity, supply chains, prices, etc. This provides the individual with the maximum choice and the minimum intrusion on their liberty. The reason we oppose socialism is that it reverses the entire scenario. Small groups of people are in charge of the controlled market and individual choice and liberty is removed.

Since a business monopoly introduces exactly the same problems, I’m always challenged by the idea that libertarians and classic liberals would think a monopoly is okay when it is, in effect, a socialism. It is a scenario where a small elite is making decisions for the broader market, rather than the market dictating.

Alright, enough of that philosophy. On to my position that government regulation enables monopoly and thus we should not view so-called “natural monopolies” favorably. For evidence, consider this post by Coyote. Here’s just a sample of the government regulation he has had to deal with recently:

  • Our corporation must register with the Colorado Secretary of State as a “foreign” corporation, foreign in this case meaning that we are registered in another state.
  • To register as a foreign corporation, we need to hire a person to be a “registered agent” to be a contact with the state. The only real purpose of this person I have ever found is to provide an avenue for mail to get lost
  • We have to register to pay Colorado unemployment insurance tax
  • We have to register to withhold Colorado income taxes from our employees
  • We have to register to pay state corporate income taxes and franchise taxes
  • We have to register to collect sales taxes
  • I think we have to get a special license for collecting electricity taxes, since we sell power to boats at some of the docks
  • We need to go through an extensive application process to transfer three current liquor licenses into our name. I wrote about liquor license hassles here.
  • The person on the phone today told me a corporation in Colorado cannot own more than two liquor licenses. If this is true, we will have to form a second company in Colorado, repeating all the tasks above plus the initial work just to form the company
  • I need to fly to Colorado to get fingerprinted for my FBI background check that is needed for the license. This despite the fact that I have been fingerprinted and background-checked for liquor licenses in several other states.
  • Since the company will hire out fishing guides from the marina, the company has to have a Colorado outfitter license, which includes a 13 page application and very detailed regulations and required contract terms I must use to provide the life-and-death service of helping people find fish.
  • The outfitter license requires that I post a bond, which in turn requires I submit detailed financial and background information to get the bond approved
  • Our managers need to attend food handlers training in Colorado. Of course, they have attended the exact same course in California, but Colorado wants them to sit through it again within their state’s borders
  • We need to fill out a pretty elaborate application to sell Colorado fishing licenses, and may need to post another bond to do so. (Update: Confirmed, we need a $4000 bond).
  • We will likely need an occupancy license from the county
  • We will need a health department inspection and license for the two retail stores, since they sell packaged foods, and a more detailed inspection for the restaurant
  • We will need a fire inspection of the restaurant
  • We will need Coast Guard inspection and certificate for the docks
  • We will need to change the registration of all 45 boats that are kept at the marina for boat rentals (imagine standing at the DMV to register 45 cars).
  • We will need Coast Guard inspection of all the boats

I’d say this list stands on its own and needs no comment from me. Except to say that the industry Coyote is talking about is not unique. Every industry is this way. Think about the impact of that on competition and how it enables monopolies. Then ask yourself why it is that established companies rarely oppose such regulation. Finally, ask yourself if you really think that a monopoly actually represents good business practices.

H/T: Got the original link from Catallarchy.


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3 Comments

  1. There’s no question that government intrusion into the marketplace creates distortions, which is why I am in favor of the elimination of all government interference in the economy. Let the market operate on its own, but part of the point I’ve been trying to make is that it is entirely possible and indeed likely that a free market economy will result in the creation of industies that are dominated by a single, highly successful company. Whether it would deserve to be called a monopoly is a question for economists, but the effect would likely be the same.

    If that’s the case, then do you agree that there is nothing wrong, from a libertarian point of view, with the existence of such a dominant company/monopoly.

    There is one interesting question that the very first item on Coyote Blog’s list raises — are corporations, which are entirely creatures of the state, legitimate from a libertarian point of view ? I’ll leave that for others to respond to before commenting further.

    Comment by Doug — February 16, 2006 @ 1:42 pm
  2. Heh, good question. I have a serious problem with a corporation having the rights of individuals.

    My bigger point is to ask how we can view today’s monopolies as good when they are, to a large extent, enabled by government intrusion into the market?

    Comment by Eric — February 16, 2006 @ 1:46 pm
  3. A Final Word On Monopolies

    About two weeks ago, we had quite a spirited debate here about the question of monopolies in a free market system, and specifically the question of whether Microsoft, or any other supposed monopoly was a problem that libertarians and classical libera…

    Trackback by The Liberty Papers — February 27, 2006 @ 4:54 pm

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