Monopoly Capital
By Alec Rawls © 1999. (1550 words) Originally published in The Stanford Review 11/8/99.

Yellow Cab has a government chartered monopoly in Palo Alto thanks to the laundry list of expensive guarantees and amenities that any cab company must offer before being licensed to do business in Palo Alto. The city government evidently thinks it is doing citizens a favor by not allowing them to choose a less expensive service. Would they also force people to buy only the fanciest computers, the most expensive cars, designer underwear?

Most people have some appreciation for the principle that consensual activities are not the business of government but many abandon this principle as soon as compensation is involved. Anyone can give anyone else a ride in their car and be protected from interference by the First Amendment right of association, but have a dollar change hands and the vast illiberal majority of American politics has no qualms about requiring driver and passenger to get society's collective permission first.

Every occupation is subject to extensive licensing requirements that outlaw vast categories of mutually beneficial agreements that people might want to enter into. Do you want to open up a business braiding cornrows? Not until you've spent 1600 hours and $7,000 learning how to bleach and curl and cut white people's hair. And if you overcome that hurdle, the first person you will have to hire is someone to deal with all the red tape of starting a business. Local government heaps it on. State government heaps it on. Federal government heaps it on.

The effect? The bottom rungs of the economic ladder have been lopped off. Only larger enterprises are able to defray the overhead costs that government imposes. Startups are limited to those with substantial backing. The only way to build from the ground up is illegally, in the underground economy, as is common in gardening and the trades, but this path is very dangerous. Government is relentless in trying to destroy the lives of those who offer a valuable service at a competitive price without official sanction. Government is the great agent of monopoly power in this country, raising extensive barriers to entry in every market at every level.

What is the motivation for this travesty? Certainly there is extensive corruption. The established members of every trade lobby government for barriers to entry to keep others from competing with them, but government in general is not bought. Representatives are selected by the whole electorate and have a broad tendency both to do what they think is in the public interest and to represent what the electorate thinks is in the public interest. The problem is that our society's concept of the public interest has been perverted and the story of how this has happened is one of the most ironic and interesting imaginable.

Government has arrived at its position as the great agent of monopoly power through its efforts to subordinate and channel the power of capitalism which, if unregulated, is imagined to result in, get this, monopoly! Read and weep for the sheer stupendous magnitude of human error. We can pick up the story in the sixties, with the beginnings of a counter-culture that was all about idealism.

Those who had grown up prosperous and free on the backs of their parents' hard work wanted to use their freedom and prosperity to reach higher, to make a contribution, to fight injustice! And the injustice they knew about was the one that they themselves suffered under: that to have their parents' prosperity they would have to do their parents' hard work. Raised to be free, they were doomed to labor. There had to be another way. "The system" had to be overthrown.

And what was "the system"? From the bowel of Marxism was delivered the timely critique: "monopoly capitalism." In the mature stages of capitalism, after much accumulation of profit, all resources would be concentrated into relatively few large holdings. The monopoly capitalists would have the political and market power to crush any upstart competitors, leaving the have-nots with no alternative but to sell their labor to the haves. So the rebellious young were victims! The counter-culture had found its justification.

A seminal figure here was Stanford's own Marxist professor of economics Paul Baran, who applied Marx's concept of monopoly capitalism to twentieth century economic developments in his 1957 book The Political Economy of Growth and in his posthumous Monopoly Capital (written with Harvard marxist Paul Sweezy and published in '64). Monopoly capitalism became the central bogyman of leftist intellectual ferment of the 60's. In hate filled screed after hate filled screed, Herbert Marcuse pushed the paranoid theme of big capital's control over culture. Consumerism is not a result of people embracing new products for their usefulness and value but is a measure of capitalism's insidious power over conscious will, a la Invasion of the Body Snatchers. Much more eloquently, John Kenneth Galbraith charged capitalism with massive inherent corruption. When counter-culture students started getting the classes they wanted, this is what they read.

As the baby boom generation accomodated itself to "the system," (that is, as they moved on to jobs and families) the counter-culture majority sought to cling to its "idealistic" bonifides by opposing the system "from within." Accepting that capitalism is desirable for its power and efficiency they maintained that it is inherently unjust. Grounded in exploitation, its tendency is to evil. Yet to the extent that capitalism could be subordinated to public control perhaps it's evil power could be siphoned off and redirected to become a force for good. Thus, ironically, have the boomers salved their counter-culture consciences by worshiping government.

Unfortunately, this priority of government over liberty is a photo-negative of the hard won understanding on which this nation was founded. The founders had a straight-forward moral compass: force and coercion are the hallmarks of evil because they indicate that someone's concerns are being trampled. Government, as the ultimate embodiment of force, is presumptively evil. It can be a necessary evil, providing a counter force to private force and fraud, but wherever it goes beyond this role (with some very limited exceptions) it becomes simply evil.

Mutual agreement, in contrast, is presumptively good because, for voluntary agreement to occur, all parties must benefit. This is the sphere of contract and liberty where people compete and cooperate in their disparate pursuits of value. The sphere of agreement is the source of all value. If government does more than try to protect and enable liberty and agreement it does nothing but harm.

Where the founders saw government as the necessary evil and agreement as the presumptive good, the Marxist view, which has infected our body politic, is to see the sphere of agreement (economic liberty, or capitalism) as the necessary evil and government as the presumptive good. With this antipathy to liberty in at its core, the illiberalism that calls itself "liberal" has marched us straight into its dread: monopoly capital. In trying to harness and channel capitalism the illiberals have imposed ever more burdens on enterprise, constantly raising the barriers to entry which make for monopoly power.

The worst effects are for the least well off. All paths of entrepreneurship are systematically erased from their world. Barriers to entry for legal entrepreneurship are much too high for beginning level entrepreneurs to surmount and the noose is drawn ever tighter on the undergound economy. Only one economic ladder is accessible: to work for those on the other side of the government erected economic divide, those who are protected from competition by the government imposed barriers to entry. The "have nots" have no alternative but to work for the "haves." The very injustice which supposedly justifies our ongoing assault on economic liberty is in fact the consequence of that assault.

We need to correct the seminal error. Exploitation is the result, not of capitalism, but of too little capitalism: of not enough markets and not enough competition. The reason Mozart died in poverty is not because markets don't reward value but because markets for musical value were in their infancy in his time, leaving him largely at the mercy of his government employers. Mozart's attempt to live off of subscription concerts in Vienna was pioneering. In today's market he would be richer than Michael Jackson, Garth Brooks and all the hip-hop bands of the world combined.

We still have a long way to go. Markets for each new path of value must be forged. Lightning from seller to buyer, from cloud to Earth, must reach sufficient charge to strike and that striking distance must be covered by entrepreneurship. Illiberal government acts as a pervasive insulating blanket. Only the big fat lightning strikes enabled by existing markets and accumulations of capital can get through. Blocked are both the rare lightning strikes by which individuals can pioneer new markets and the thousands of small lightning strikes that would arise thickly even from the poor if they could offer their services without intermediary, growing as they can and wish instead of fitting into the bottom rungs of someone else's economic ladder.

Justice requires liberty. The claim that liberty is the source of injustice is the great Marxist lie, the enduring evil legacy of the world's most destructive doctrine.

(Alec Rawls is pursuing a Ph.D. in economics)


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