A rebuttal to a socialist on the topic of monopolies.

Recently, I spoke with someone who is a philosophy instructor at a local college. He posed a question which amounted to "Consider giant monopolies, which consume so much of the market that they make it hard for others to compete and bring much suffering upon society. Is this permissible?"
My initial reaction was certainly to realize he was likely brought up and educated in some sort of Marxist dogma, and that very well may be. Though we have made these arguments thousands of times, and it seems those emotionally damaged enough to be socialists who deny economics seldom listen, it is important to always diligently reply to these people with well ordered logic and fact, because occasionally, they do listen. Here is the essence of my response.

In reality, monopolies exist only as the product of state intervention in the economy, and in principle can certainly have negative effects, namely limiting innovation. It seems that monopolies arise in two possible ways. Most come about as the result of government regulations on certain industries, which often appear to curb the effects of negative externalities, or otherwise provide for the "common good". Complying with these new regulations drives up the cost of doing business in a certain industry, and drives smaller companies out of business as they are not as well able to meet the increased costs as are large companies. These regulations are sponsored in government by lobbyists on behalf of the larger companies in order to eliminate competition, and consolidate control over the market through acquisition of their former competitors.

Monopolies can also be chartered by the state, though this is mostly an archaic practice and is less common in the present day. Many governments gave certain companies monopolies over trade in overseas territories during the age of colonialism, such as The Dutch East India Company or The British East India Company. As these monopolies proved disastrously uncompetitive and corrupt, this practice was largely abandoned going into the latter half of the 19th century.

In practice, monopolies which arise through the use of the state enforcement of regulations do not tend to raise prices to unbearable levels. In fact, they do the opposite, lowering the price of a good as much as possible and decreasing the price of it's production, both in an attempt to put an end to the production of competitors, and to enable and entice people to buy more of that good. This is well evidenced by companies such as The Standard Oil Company, which by virtue of its immense production of a formerly scarce good and by its extreme efficiency, were able to immensely decrease the price of oil.

(The Standard Oil Company was formed in 1870)

Contrary to the social Marxist and progressive narrative, the accumulation of wealth by large companies creates more wealth in a society at large, inspires new technology that improves quality of life, and indeed creates more job opportunities within the industry and routinely increases quality of life and even pay among employees in these companies. This is evidenced by the Ford Motor Company's standard setting wage increases in the early 1900's.

State chartered monopolies are ineffective and corrupt, and while they do often create wealth, it is even more at the expense of possible competitors than when monopolies are "organic". The fact that the government will use violence to defend these monopolies also denies innovators the ability to come along and dislodge these monopolies, unlike with monopolies that arise voluntarily.

It is true that monopolies, like cartels, are not anywhere near maximally efficient in creating wealth for entities other than themselves or even producing as many products as is sometimes demanded, as doing so would often be contrary to their own desires for profit. In general the idea of a monopoly in an industry is distasteful, as their presence can lead to abusive pricing well above what would normally be demanded, especially with inelastic goods. Monopolies tend to become excellent at producing one type of good extremely well and cheaply, but have little incentive to innovate, as it would be costly to change their massive "means of production" to fit the new requirements.

Obviously,competition is always necessary, and the more competition possible the better. However, the most vocal opponents of "monopolism" always seem to be people who favor state intervention in the economy, and who do not realize the irony of their stance. It is precisely these people who lead to the environment which engenders the creation of most monopolies, and indeed the best way to prevent monopolies is to create a totally free market, so as to create as close to a perfectly competitive market as possible. When monopolies are not violently enforced, the ability for innovators who are either able to produce goods or provide services cheaper, faster, or better, to disrupt industries and dismantle these monopolies is high. This alone make the rise of monopolies less frequent or likely. This has happened in the past and will continue to do so. Going further, when constricting regulations are not violently enforced, monopolies are unlikely to arise in the first place, as smaller companies are much better able to survive and remain competitive. When there is no state patent office, things get better. Ideas cannot be purchased as patents and thrown away by established companies who have an interest in denying innovation to stifle competition. In every way, the removal of restrictions imposed by the force of the state allows more perfect competition, with better results for everyone.

As expected, he was not fully satisfied with this answer, and replied with something like "So what about cases like Walmart and Amazon, who have made it very difficult, if not impossible, for others to sell retail goods in small markets? They have their people in government positions of power, but ultimately their dominance is due to their ability to lower prices via their sheer comparative size."

I was a bit surprised to hear him say something like this, both incoherent, correct and incorrect.
What is wrong with companies who are able to lower prices by virtue of their size? What is controversial about this? The concept that production becomes cheaper as the scale of an operation is increased is called "economies of scale", and it is a basic economic fact. It is not a problem, either, it is the reality of the situation, and it tends to benefit mankind! Even if it were, it could not be changed. An example of this is Andy George's attempt to make a chicken sandwich completely from scratch, getting ocean water for salt to make pickles with, slaughtering his own chicken, even harvesting his own wheat for bread. It took him six months and cost $1500, and in the end it was "not bad". In any American grocery store, however, you can buy a pre-made chicken sandwich for about $2, that is at least, "not bad". Why? Economies of scale. This philosophy instructor was right about part of the reason Amazon and Walmart are successful, but he appeared to be shocked about basic economics.

By the way, is there any problem with Walmart making available to poorer people goods which were formerly unavailable to them? Or is there anything wrong with Walmart providing jobs to many many people across the world? No, there is not, and it is a tremendous good. The same is true with Amazon, who have both provided jobs, revolutionized the retail industry, and made available a greater quantity of goods to a greater quantity of people than ever before. Both of these retailers are much more effective than old fashioned competitors, and are reaping those rewards.

His claim that neither have competition is ridiculous as well. Not only does Walmart compete with every conventional retailer of every sort in the USA, they compete directly with Amazon as well! Amazon also has serious competition in the numerous smaller online stores selling specialized items, and has a fierce competitor as well in Ali Baba.

It appears that some people have a strange aversion to the free market, but do not even fully understand it. When confronted by situations like mine, take the time to provide the explanation, logic, and evidence to enlighten people as to the truth of morality, and the value of liberty. It will pay off.

P.S. If you have friends interested in liberty, or friends who need saving from the perils of statism, direct them here! They might like what I have to say.