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Thursday, February 18, 2010

On Monopolies and Transportation

Over at my post, "When Libertarians Like Big Government," reader Alexander left the following thoughts and concerns:

The reason why most people think libertarians are a bunch or cranks and cooks is exactly this: most libertarians suffer a complete inability to see reality and to find practical ways of doing things... not really (laughs) it is just that a good idea is sometimes an unpopular one.

Although it would be nice to live in a world where charities could manage parks and other non-revenue generating activities most people are not behind us. It would require a fundamental change in the way everybody thinks about parks and would be a lengthy transition. The good news is that it is practicable for parks to be privately managed because there is more than one.

However, when it comes to the transportation system that is an issue so complicated that it would take a book (thank you Wes, for the recommendation) to fully understand how such a system would work. I have not done much research into the issue, but I would wonder some key things: where does the money come from (tolls?); how would we prevent monopolies or exploitation? (usually the government handles monopolies because competition is impractical)

Keep in mind that neither party fully supports these ideas. We libertarians have such good (and populist) ideas: balanced budgets, leaner and more strategic foreign presence of our military and a different tax structure (Can you have a progressive tax structure without having to give up so much information?) However: when people hear ideas such as closing public libraries and schools: they think we're anarchists and are scared to the two parties.

Also: EVERYBODY uses the transportation system. I don't know anybody who hasn't done one of the following: walked/rode on a sidewalk, walked/drove/rode on a paved road, rode a subway/bus/train (I myself have done ALL of the above) so shouldn't EVERYBODY help pay for it? Everybody eats too, but we all eat different things at different places in different amounts, but we all use the SAME transportation system.

The books Wes recommended are linked here:

Alex's concern about monopolies prompted me to write the following comment, because monopolies are an important phenomenon for libertarian economics to address.


You've got a lot of great thoughts in your comment- to hit on just one, your concern about monopolies brings up a bigger question, which is what causes monopolies? I actually think an unregulated market would be much more free of monopolies.

In fact, I believe it is only by an act of coercion (e.g. government regulations, subsidies, etc.) that a true monopoly can be established, not due to a lack of regulation or the operations of a free and unconstrained market.

To use an example in the field of transportation, many cities regulate the number of taxis by requiring them to get a license or "medallion" to conduct their taxi business (of which there are usually a limited number, or for which the price is usually prohibitive). As a result, there are fewer taxis, with lower quality, and higher prices because they are protected from competition by the government- they have a cartel or a monopoly.

It's actually very interesting that you are concerned about monopolies in a free market for transportation, because this is an industry that is rampantly subject to the inefficiencies of monopolies due to the heavy government regulation thereof. Indeed, I'd say the biggest, baddest monopoly on transportation is the government and its special interest private contractors.

Ayn Rand has some great, succinct thoughts on monopolies here:

P.S. This is a critical part of Alex's analysis: "However: when people hear ideas such as closing public libraries and schools: they think we're anarchists and are scared to the two parties." That is exactly right.

As defenders of libertarian thought, we have to understand that this is the kind of feeling people get when we discuss our ideas, and we have to learn how to address these feelings. To me, it should be the other way around. If someone suggested nationalizing the shoe industry and centrally running it with taxpayer money, people would scoff and call them a communist.

How are shoes and books different? Or shoes and education? Or shoes and transportation? They are all goods that we value highly and have powerful economic incentives to build industries around. The market that's done so well at distributing shoes (so that even the poor among us can easily afford a pair) can do just as well at creating and distributing the world's very best transportation, education, and books.

Tying it in with monopolies, a government monopoly on education or transportation simply cannot deliver the quality or price that a free, unfettered market of enterprising individuals can. We as libertarians have to help people see that society wouldn't fall apart without socialist education, just as it hasn't fallen apart without "socialist shoes" or "socialist fast food."


  1. No love for this article... it seems our conversations aren't that interesting, Wes

    However, people don't realize that you CAN have universal education without having the government control every aspect of it.

    And I would tell Obama: you can even have universal healthcare without having socialized medicine, but that's a different story...

    Not that I necessarily agree/disagree with universal K-12 but a government mandate, but private funds work better (Parents should have no right to deny education to their children).

    But the central question (it is indeed complex) should be: who pays for what roads? I have access only to one, I must use that one road to get to all the others, so anybody who owns it effectively has a monopoly on it.

  2. Exactly- "socialization" is not the only route to universal access.

    As for your central question. I don't know that there would be only one means of transportation (and who says it has to be roads?). In a free market of transportation if a road's price was too high, capital markets would naturally seek out and fund a competitor who could capture all the first road's customers by charging less.

    No one can ever complain about Wal-Mart that they got big by charging too much! Or that after getting big they were ever dumb enough to charge too much.

  3. Lol- and yeah- our extremely nerdy, fringe issue of road privatization doesn't seem to be getting a lot of attention. That article about abortion and rape though... sheesh. I think it's up to 30 comments now.

  4. There's only one road in front of my house. I may be able to choose among multiple routes to work, but for the "last mile", there's a monopoly. Cities would have to be leveled and rebuilt from the ground up to allow us to have two roads on either side of each house, and there's really no practical way to have more than two roads to access each house. Monopolies (or possibly duopolies) are inherent in transportation regardless of whether there's government. It's a simple fact of geography and operating a ground based conveyance in a effectively two dimensional world.

    Yes, in a libertarian world, I could choose where to live based on which company provided the road service. I could also choose where to live based on which company provided the fire service. Again, geographic constraints; the best fire protection service is the one that can arrive at my house in the least time. It's inherently monopolistic; for all but a handful of people who live equidistant from two fire stations, there will only ever be one practical choice.

    I can choose where to live based on the road provider, or the fire provider, but I can't choose both. If good roads are my top priority I may have to settle for inferior fire service, or vice versa. The services are geographically constrained and essentially bundled together. Buying a house for the roads means I get whatever fire service is in the area. This doesn't sound all that different from having a government provide these services; either way it's impossible to have free choice in ideal living location, and quality of all the geographically constrained services..

  5. I am a Constitutional Libertarian. I have some issues with some services as supposed free market. Roads are certainly one along with fire departments. We had competing fire departments in the past and it was a disaster.

    Fire departments would actually set fires to drum up business.

  6. Sadly, companies in most industries command monopolist pricing-- that is, even in a purely free unregulated market, once a company gains a large enough market share, they can command a price for their product higher than the marginal cost of producing it.

    In a libertarian utopia, ultimately these monopolists will find themselves in position quite like that for which they demonize the government. They can dictate whatever price they want, and (as long as people want shoes, gasoline or protection, for example) they can continue to raise prices and lower wages for no reason other than to squeeze both consumers and employees, both of whom have no outside option. The point is not that these monopolists wouldn't deserve that power (assuming the popularity--or, frankly, the necessity-- of the products/services they provide) but instead it will be one entrenched bureaucracy that is replaced with many.

    Instead of the tyranny of one government, would you prefer a "free market" where there is only one producer of every single product you consume? It's like those old cartoons, but instead of ACME selling everything, we have a world where only Nike sells shoes, Exxon sells gas, and Blackwater protects us, etc.

    Fine, if you're one of those entrepreneurs that finds the single product that will come to dominate your respective market, but the rest of us who buy those products or who have to work for those companies will be subject to price setting and wage bargaining in a Nash equilibrium with absolutely no bargaining power whatsoever.

    And even in a world where all of us finds one niche product or service we can sell as a monopolist ourselves, we will be limited entirely by the popularity (and ubiquity) of the product that we produce or the service that we provide. Last time I checked there were MANY more people on this planet than there were unique services or goods to be provided. In that sense, libertarianism seems to (and hopefully inadvertently) advocates a war on the poor, disadvantaged or undeveloped.

    I admire you libertarians for your intellectual fervor and for your high expectations of us all as individuals, I just wish more of you had stronger math skills (and a better sense of what life is like for most of the rest of the people on this planet).

  7. Read "Antitrust" by Alan Greenspan: