07.07
Let me give you the standard line and let’s see what you think: Our government seeks to keep prices low by encouraging competition, leveling the playing field, regulating natural monopolies like utilities, etc. to help the consumer. This makes sense right? I mean, aren’t we always told that anti-monopoly suits like the ones brought against AT&T, Microsoft, IBM and Standard Oil are meant to help the consumer? Well, I interperet “help” as meaning lower prices and I assume you do too. I’ve got news for you. If you think for one minute that anyone in government cares about low prices you’re crazy. That’s a total crock of crap. One of government’s main functions is to make things more expensive for consumers. And, no, I’m not just talking about taxes. That’s the obvious one. I’m talking about all kinds of things. Food, energy, housing, clothing, automobiles, etc. Government makes them all more expensive. On purpose. By design.
The standard line of thinking that you come out of high-school government/economics class with is that the market is always trying to drive prices up to make profits, and it’s the government who comes in as the non-profit public servant and fights against businesses to help keep prices down. Again, this is total, 100% crap. Just think about it. Why would a corporation have higher prices as it’s business model? If you owned your own business would you have raising prices as your goal? Of course not. Raising the price of your products has the obvious result of making your customers buy less of it. And why would you want your customers to buy less of your products? That would be stupid. It’s the free market that’s always in a constant battle to figure out how to reduce prices by reducing costs. And this understanding of the market price mechanism is key. As a business man, your first and most dangerous competitor isn’t the guy down the street, it’s your own business itself. Finding new ways to reduce costs through new technology, better management, streamlined supply chains, and so-forth is always the biggest struggle you will face.
This is obvious if you look at the classic case of Standard Oil. Supposedly the worst of the worst of all the anti-trust cases:
Standard’s service to the consumer in the form of lower prices is well-documented. To quote from Professor Armentano again:
’Between 1870 and 1885 the price of refined kerosene dropped from 26 cents to 8 cents per gallon. In the same period, the Standard Oil Company reduced the [refining] costs per gallon from almost 3 cents in 1870 to .452 cents in 1885. Clearly, the firm was relatively efficient, and its efficiency was being translated to the consumer in the form of lower prices for a much improved product, and to the firm in the form of additional profits.’
That story continued for the remainder of the century, with the price of kerosene to the consumer falling to 5.91 cents per gallon in 1897. Armentano concludes from the record that “at the very pinnacle of Standard’s industry ’control,’ the costs and the prices for refined oil reached their lowest levels in the history of the petroleum industry.’
John D. Rockefeller’s success, then, was a consequence of his superior performance. He derived his impressive market share not from government favors but rather from aggressive courting of the consumer. Standard Oil is one of history’s classic efficiency monopolies.
So here we have the biggest poster-child for monopolies being bad in the history of the United States. And what do we see? The price of their product went down year after year as they improved their internal processes and drove down their own costs. The cheaper they could make their product, the more of it they could sell. This was wonderful for consumers who, prior to the civil war, had been mostly unable to afford kerosene and had to opt for wood-burning heat. Standard Oil made kerosene affordable for every family from every income level. And for this they were demonized. Not because they hurt the consumer, but because they hurt their competitors. And those competitors complained bitterly to their elected officials about Standard Oil. This is all a matter of public record:
Members of Congress at that time clearly recognized those facts, but they wanted to pass a law that would protect less efficient and higher priced businesses. “Trusts have made products cheaper, have reduced prices,” complained Rep. William Mason during the House debates over the Sherman Act. Low prices, he said, “would not right the wrong done to the people of this country by the ’trusts’ which have destroyed legitimate competition and driven honest men from legitimate business enterprises.”
And this is what government does. If the market makes prices too low, then two things inevitably happen. First, somebody, somewhere is probably not able to keep up in that particular sector because they aren’t as good as the leaders. You can expect them to use their money to lobby government to “help” consumers by eliminating their competition, or placing enough burdens on them to at least raise prices back up so they can compete. Secondly, you can’t have prices be too low, because that makes taxes too transparent. When gasoline costs .85 cents per gallon and congress wants to add a ten cent tax to it, it’s really obvious what’s going on. When congress adds a ten cent tax to gas when it’s $3 per gallon, it gets lost. If you still don’t believe me, let me pull out the cou de’ gras: F.D.R in the Great Depression:
The Agricultural Adjustment Act sought to cartelize the agriculture industry by paying farmers huge sums for not growing crops and raising livestock. Farmers benefited for a while from this program, but many poor sharecroppers became destitute because of it. After the U.S. Supreme court ruled this monopolization scheme unconstitutional on January 6, 1936, Roosevelt continued with it any way by disguising the program as a “soil conservation” effort whereby farmers were ostensibly paid to “conserve soil,” not to restrict output and raise prices.
Roosevelt’s thinking was that the depression was being caused by low prices. So, he would artificially raise prices by restricting output. Doing this to food was nothing short of catastrophic. When you see pictures of soup lines during the great depression, it was this that caused it. When people lose their jobs en’ mass, the last thing they need is for government to artificially raise the price of food. But that’s exactly what happened. And that’s what always happens. Government’s answer to everything is always to make it more expensive. It’s the free market’s goal to always bring prices down. Nothing could be more obvious. Ever wonder why all the gas stations in a given area are priced within a few cents of each other? Why doesn’t one ever break out and drop their price .25 cents per gallon lower? Are we to believe it’s because not one single oil company has made any cost reduction gains that could allow them to do that? Of course not. The reason they are all priced the same is because they have to be:
There are hundreds of statutory minimum prices, including gasoline in some states. There are numerous agricultural import restrictions and production quotas. All of these government-sanction market manipulations represent seller collusions against consumers. You say, “Williams, how can that be? The Sherman Antitrust Act gives the U.S. Justice Department and the Federal Trade Commission the power to prosecute and levy fines or imprisonment for price-fixing.” You’re absolutely right. Price-fixing is illegal, and you will face fines or imprisonment, but with one caveat: unless you get permission from congress or your state legislator. If you get permission, price-fixing becomes legal and it’s non-price-fixing that’s illegal.
You can thank your state government for not allowing competition among oil companies. And it’s all done under the guise of protecting the consumer, even though nobody ever cares to explain how setting a “minimum price” helps anybody. Do not ever fall for anything coming out of Washington, or your state capitol that claims to improve competition or help the consumer. That’s not what government does.
Critical listening on this subject:
Protectionist Origins of Antitrust:
Critical reading on this subject:
