The Greatest Monopoly of All

Matt Fagerstrom

Matt Fagerstrom

Matthew Fagerstrom is an economics and political science student at Villanova University. He is currently working alongside a professor on a study of wealth inequality. His favorite areas of economics are the minimum wage and monetary policy.
Matt Fagerstrom

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There is an unlimited want for goods and services. Indeed, this is part of the definition of economics, that the dismal science is the study of how individuals allocate scarce resources to resolve infinite wants, but just because a good or service is not supplied on the market does not mean that it is outside of the purview of economics or that the demand for said good or service does not obey all the traditional laws of economics. While the decision making process is often different in the political and economic sphere owing to a change in incentives, the praxeological laws of human action still apply no matter where the individual is acting.

One good that does not exist in the private sector and is usually not studied much from the point of view of mainstream (read: Keynesian) economists is the market for leadership or governance, even though governance is certainly a vital service without which there would be great difficulty in organizing human interaction. For the most part, there is very little competition in the market for leadership; it is the most monopolized market on the planet. While it may be argued that there are 196 different firms offering the service of governance, that is that there are 196 countries (depending on how lenient one is with sovereignty), the truth is that the fact that most of these are nation states makes it remarkably difficult to simply move if one finds their particular governance firm to be doing a poor job, although some do move, and within a given geographic area there is only one leadership firm to choose from (I will continue to use the terms governance and leadership interchangeably throughout the article, although I know that the words do mean two different things).

Certainly some countries are further broken down into provinces, states, or cantons, which allows some competition between the aliquot parts, but the states are still a monopoly within their state boundaries. One may move from California to Texas, but one is still in the United States, which limits the ability of one to shop around for different codes of law, so to speak. Simply put, by all conceivable metrics a country is monopoly within its geographic borders.

What is the point in defining countries as monopolies? It is to argue that whatever arguments are created to castigate monopolies on the market may also be equally applied to governments; in fact, these arguments are made all the stronger by the fact that competition in the market for governance is often rigorously outlawed by the monopoly firm. The arguments against monopolies are that they can provide an inferior good at a much higher price, that they have little to no incentive to respond to consumer complaints or demand, and that they prevent others from entering the market and satisfying consumer demands more adequately by erecting barriers to entry. This is undoubtedly true of governments. Taking the United States as an example, they provide an inferior good at a higher price in the form of only 30 cents going to those in need for every dollar of aid compared to 70 cents of every dollar going to those in need through private charity, they are immune to consumer complaints considering that congressional approval hovers at 15%, and they erect barriers to entry by preventing people from forming their own governments within the United States. I could list countless other examples, but suffice it to say that this is problematic considering that governance is the one service that enables us to have all other services. Without a system of property rights, there can be no economy, and one of the major purposes of a system of governance is to protect such rights; a monopoly firm does a poor job of it by all accounts.

One of the major complaints against capitalism is that it produces monopolies or oligopolies that harm consumer welfare. While it is not true that monopolies do not form under free market capitalism, since businesses cannot force you to buy their products at the end of a gun, governments can and do force you to pay for their services with legions of tax collectors and policemen ready to enforce the tax code, with violence if necessary.

Just to digress for a moment on the issue of free market monopolies not existing, I mean monopolies not merely in the sense of having a large market share, but in the negative sense of being a coercive monopoly that can prevent others from entering the market. All examples of a monopoly rising on the market are either from a grant of government privilege, which is certainly not a free market, or an example of an amazing entrepreneur who is aiding consumer welfare instead of hindering it, and not examples of predatory price fixing or any other anti-competitive method; antitrust laws are simply ineffective at aiding consumers and most likely only make them worse off.

Returning to the subject of governments, it is clear that they are coercive monopolies in the negative sense. Since competition is forbidden, they have absolutely no incentive to serve their consumers. Democracy and the ability to vote is not much of an incentive to aid their consumers, since reelection rates are around 90%, meaning that it is rather unlikely that any given congressman or senator will lose their job, and even if they do, they would only lose it to another a person who will be a member of the government, there is no way of voting out the entire system or switching to a different one. Allow me to illustrate with a market based example. Imagine there were two car manufacturers, A and B, but they are both owned by C, so that while they compete, they are in fact sending all their revenue to the same person at the end of the day. If one wishes to switch from A to B or vice versa, they are still using the same firm at the end of the day, and government is no different.

If competition is vitally important in oil and electronics, two of many areas where antitrust laws have been used to breakup “anti-competitive” firms, then it must be equally important in the field of lawmaking and governance, since without a good system of property rights and legal protection, there would not exist the proper circumstances to drill for oil or design electronics, yet almost no one today, and certainly no one in government, discusses the need for rigorous and real competition in governance. Almost everyone agrees that having elections is better than having a tyrant rule autocratically, since that is at least some competition of ideas, but the idea is never taken much further than that. Removing barriers to entry in the market for governance would be a great boon to not only liberty but also prosperity, by allowing people with different philosophies of law to live under different codes of law through a market mechanism that adequately protects the property rights of all involved.

One imperfect example of this would be the Italian city-states which were decentralized cities that competed with each other for taxpaying citizens; most of medieval Europe was like this, but Italy was one of the more decentralized regions at the time. It was this competition that caused Italy, with Florence being one remarkable example, to be the birthplace of the renaissance by offering a more attractive system of governance than her peers, in part due to tax breaks. This competition in government caused city-states to compete for taxpayers and thus offer the best government they could provide instead of being a monopoly service that could mulct the taxpayers for as much as they were worth since they had nowhere else to go. Moreover,  this competition bankrolled the renaissance and lifted Europe out of the middle ages into a new period of relative wealth (Cohn 457-85). To build a free and prosperous society, it is necessary that governments be allowed to compete on an open market for law.

Sources:

Armentano, Dominick T. Antitrust: The Case for Repeal. Auburn, Ala.: Mises, 1999. Print.

Cohn, Samuel. “After the Black Death: Labour Legislation and Attitudes towards Labour in Late-medieval Western Europe.” Economic History Review 60, no. 3 (2007): 457-85.

Gass, Nick. “GOP Congress Earns Low Marks from Public.” Politico.com. Politico, 12 Aug. 2015. Web. 5 Aug. 2016.

Mahtesian, Charles. “2012 Reelection Rate: 90 Percent.” Politico.com. POLITICO, 13 Dec. 12. Web. 05 Aug. 2016.

Mcgee, John S. “Predatory Price Cutting: The Standard Oil (N. J.) Case.” The Journal of Law and Economics 1 (1958): 137-69. Umich.edu. University of Michigan. Web. 5 Aug. 2016.

Ruwart, Mary. “How Effective Is Government Welfare Compared to Private Charity? – The Advocates for Self-Government.” Theadvocates.org. The Advocates for Self Government, 25 June 2013. Web. 05 Aug. 2016.