The Misconceptions of Monopolies

Monopolies can exist under several situations but as you will come to understand, the detrimental effects are usually minimal when they do exist, except under very specific situations. Sadly, the political system and main stream media have misled the American people into believing government can and must be there to break these monopolies up when they do happen. We will review some very costly mistake initiated under corrupt motivations, of course hidden by the passing of time.

Even though what I am writing here is well documented, I’m going to use simple economic principles and good old common sense to help prove these contentions. Just remember though, the studies have been done by academics supporting everything I write here. Two examples: https://goo.gl/5ASD6Q https://www.cobdencentre.org/2018/08/the-case-against-antitrust/

The most common “true” monopolies occur under two potential scenarios.

  1. The small-town monopoly. This is when you have such a small number of consumers in an area that having two stores supplying similar products or services would just not be able to be financially supported enough for both to be profitable. The small mining town hardware store is an example. The store may have to even charge higher prices to account for the extra costs in getting the goods transported to the remote location. The more remote the higher the transportation costs.  You can go to many small towns in America and see this with even my small town as an example. We have one hardware store (a monopoly) but because we are not that remote, the prices have remained very competitive. Common sense tells us if you only have a small number of miners that can and will buy pickaxes and shovels from a supplier, why would somebody go through the expense of opening up another store to also sell the same things.  Plus, some of the miners are going to bring tools with them, knowing that they would have to pay higher prices from the monopoly hardware store if they don’t, so these remote monopolies are not total monopolies, because they still have competition from the miners bringing in their own supplies. 
  • The New-Product/New Company Monopoly. The most famous case of a New Product Monopoly is the history of Alcoa Aluminum but there are many others. AIcoa was the company that invented the process for making aluminum, so initially there wasn’t anybody competing with them, because nobody knew how to make aluminum before Alcoa started making it. It was by technological innovation, a monopoly.   

Not surprisingly, Alcoa was able to make huge profits prior to other competitors entering into the market. We saw this same thing with cell phones and calculators in their infancy as new products. They were very expensive when they first came out and today some companies are given them away for free, as marketing incentives.       

Of course, the government jumped into they picture telling the public they needed to do something. What do you do with a new product monopoly, however was the question? If you break up a company and nobody else can make the product, whose is going to make the product or how do you break it up? Now, here is the really interesting part of this story and why Free Market monopolies, discussed below, don’t last very long. When ever you have excess money being created by a business, i.e. profit, somebody is going to figure out how to compete against that company to get a part of it. In the case of Alcoa, a group of employees from within the company itself, broke off and formed a new company, obviously quitting Alcoa to compete for the excess profits. Soon others also entered the market as the uses for this very light metal increased. Today, much of an airplane and many products are made out of aluminum, so many companies around the world, now compete in this market. This story shows that true monopolies will disappear on their own accord as profits rise in any industry and others come in to compete. How much market share a company has, can get or may lose in the future is one major issue that ever company must constantly evaluate for their specific market.  

The most important elements or factor(s) involving monopolies; is if and when they harm consumers, workers or when they try to stifle competition, neither of which New-Product or Small-Town monopolies, can really accomplish. There are just not enough people affected to be of any significance, as we have already learned, someone will usually enter into the marketplace, if large enough, when there is price gouging and excess profits. This is common sense, right?   

With New Products monopolies, the government also provides patent or copywrite protections as an incentive to spend the time, energy and money to invent and create new products. This can create a problem as we are seeing in the pharmaceutical drug industry. Because of the tremendous amounts of money involved, the industry is pushing politicians and even Judges to extend the patent protection periods beyond the original guidelines established by law.  Then we wonder why drug costs are so high. Obviously, those in government are allowing big business and money to manipulate and influence society to the detriment of the majority. This happened with anti-trust legislation as well.

  • Government Granted Monopolies

This brings up and allows me to segue into another form of monopoly, those granted by legislative Acts at the various levels of government.  It can be as simple as a garbage company getting from a local municipality exclusive territory for garbage collections or a central bank like the Federal Reserve Bank enacted into law in 1913 by an Act of Congress. These are potentially the most dangerous type of monopoly because competition is prohibited and exclusive operating power is granted. Common sense tells us that granting a monopoly to one group or company is exacted what the Sherman Anti-trust Act was supposed to do, protect the public from Robber Barron’s overcharging. How does government justify granting a true monopoly to a very financially powerful group of bankers and investors?   

Why those in government think it’s good to have a monopoly in a public setting and a bad idea for a privately-owned company is interesting. Or are the wealthy special interests just able to manipulate the political system to gain special benefits and privileges? It hard to know since no competition is legally allowed to see if one entity would do a better job at a cheaper price than the ones granted the monopoly.

Once again, history tells us different stories as to how monopolies have affected our lives. The government and main stream media tell us one thing and academics and common sense often tell us another.

As an example, within just 16 years of the Federal Reserve Act of 1913 (FRA), our society was in the deepest and longer Depression in U.S. history, exactly what the FRA was supposed to stop from happening.  Bank runs, another situation the Federal Reserve Bank was supposed to stop, put many banks out of business with vast numbers of depositors losing their money under bankruptcy protections and the allowance by the Federal Reserve Bank (FRB), to fractional lend;  lending out more money by using existing deposits as collateral to borrow money from the FRB.  We’re not really told that it was the FRB’s own policies of allowing fractional lending is what caused million of Americans to lose all of their money held by the FRB’s member banks.

Is it just coincident that this happened? I always ask myself, why would a society grant a monopoly to some of the wealthiest banking families in the U.S. and world? The Warburg family as an example, with one of the three sons Paul, who helped plan the Federal Reserved Bank is from Germany and the family still operates their today. He had worked with bankers in England France and Germany before coming to the U.S. https://en.wikipedia.org/wiki/Paul_Warburg

One of the more recent best-selling books on the subject is The Creature From Jekyll Island, the non-fiction story about how Paul Warburg, other banking interests and U.S. Government officials met at Jekyll Island, GA, the hunting estate then owned by J.P. Morgan, to plan for the enactment of the Federal Reserve Act.  Why was it secretly orchestrated and thus kept from most of the publics eye is a huge question?  Some employees involved did leak it, but conspiratorial news back then travels at much slower speeds. Is it coincidental that the XVI Amendment allowing direct taxation on income without apportionment as well as the Revenue Tax Act of 1913 also passed that very year? That an income tax is the 2nd platform, and a central bank the 5th platform of communism and that the Zionist movement supporting these social polices was being financed by major world banking and corporate interests?

Then ask yourself, why would bankers and other corporate interests want a banking monopoly under their control and an income tax? 

It is both more devious and brilliant than you can imagine.  Corporate welfare long a favored social policy for wealthy special interest, started in the early 1800s with the western railroad expansion, expanded under the guise of general welfare, for both more infrastructure and defence spending.  The bankers were of course guaranteed their interest payment on the loans they gave these companies by the U.S. taxpayers who paid for all the government spending.  The central banking monopoly guaranteed their participation in the creating of money, lending guidelines and the determination of interest rates. Now this is where it’s good to know a little about finance and economics.  A central bank can slow down economic activity by simply raising interest rates and requiring more reserves from the member banks as they have done multiple times through history. Individual and businesses are less likely to borrow money when interest rates are high and more likely to borrow when interest rates are lower. Common sense, right?  Additionally, the member banks cannot borrow as much themselves when they must put up more reserves as collateral, thus they have less money to lend. 

These two abilities give the Federal Reserve Bank the ability to literally slow down the entire economy or speed it up by lowering or increasing interest rates and reserve requirements.

Another huge question is, do they do it for themselves and other wealthy special interests or for what is in the best interests of the majority.

Free Market Monopolies

So far, we have only reviewed those monopolies that do exist most often in society, but have minimal effects as do Small Town or New Product monopolies or can have profound affects if they are Government Granted ones.

As was previously briefly noted, true free market monopolies are very rare and if and when they exist, they are short lived but here’s the problem. A true free market hasn’t really exists for very lone, giving way to greater and greater government interventions after the overthrow of the European Monarchs in the late 1700s and early 1800s. Many smaller countries were still gaining their independence, well into the 20th century. Governments do not give up their powers and interventions easily.

The U.S. Federal Government started out with very few interventionists social polices with the entire Federal Government being paid for by only luxury import taxes.  Not one single penny was paid by a Citizen of the United States to the Federal Government and what minimal taxes there was were assessed and collected by the State Governments. Consider that the best way of telling how capitalistic a nation is, is by determining the total taxes and redistribution of wealth social policies. The less the size and scope of government though redistributive taxes, the more capitalistic and vice versa, they more taxes and redistribution of wealth programs the more “socialistic” your society is considered. In generalized context this is my favored method of looking at the effects socio-economics has on society and how we define them.                                                           One could surely argue, that there are always various interests trying to manipulate the market for greater profits. how people do it is the key. If a company gets a local municipality to give it a garbage collection contract, they have just gotten a government granted monopoly to pick up the trash from all the Citizens in that community. That’s obviously not a free market monopoly nor is generally the local sewer plant, unless it is a private sector company with no government restriction on who they can do business with and consumers are free to contract with others or have their own sewer system, both of which occur in our society. There are many smaller privately owned communities that own their own sewer treatment plants and people agree when they buy into the community to utilize the utility or provide their own. These are usually enforced with property covenants and restrictions as part of the deed when you purchase a property and the homeowners exercise management and financial control over the operations of the sewer plant. The point I’m trying to make is there are often two way to skin a cat and it doesn’t have to be by the government. However, government and special interest will often try to intervene, such as the local garbage company noted above despite constitutional prohibitions legally prohibited Municipalities from granting monopolies to private companies.

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