Week in Review
So many people fear the low prices of corporations. They say they will put higher priced Mom and Pop shops out of business. Then when they have a monopoly they will raise their prices and gouge their customers. Which is silly. Because corporations can’t create a monopoly. Only government can grant them one. Allowing them to charge the high prices once the government eliminates all competition. But even when the government does if there is a market for lower prices some competition will find a way (see 3 epic fails that prove Uncle Sam is a terrible venture capitalist by Burton W. Folsom Jr. and Anita Folsom posted 4/19/2014 on the New York Post).
After 20 years in Europe perfecting his steamboat, an inventor named Robert Fulton returned to the US in December 1806.
He knew that a legislator, Robert Livingston of New York, would back him to the hilt. Livingston was a Founding Father who believed that steamboats would work well on the wide rivers of North America. Livingston and Fulton obtained a monopoly from the New York legislature for the privilege of carrying all steamboat traffic in New York for 30 years, if they could produce a working steamboat within two years…
One problem with Fulton’s monopoly, however, was that it affected shippers in neighboring states. As steamboats became more common, the Fulton monopoly meant that other companies couldn’t sail in New York waters without fear of fines. The monopoly also kept ticket prices high.
Finally, in 1817, Thomas Gibbons, a New Jersey steamboat man, tried to crack Fulton’s monopoly when he hired young Cornelius Vanderbilt. Gibbons asked Vanderbilt to run steamboats in New York and charge less than the monopoly rates…
For 60 days in 1817, Vanderbilt defied capture as he raced passengers cheaply from Elizabeth, NJ, to New York City. He became a popular figure on the Atlantic as he lowered the fares and eluded the law.
Finally, in 1824, in the landmark case of Gibbons v. Ogden, the US Supreme Court struck down the Fulton monopoly. Chief Justice John Marshall ruled that only the federal government, not the states, could regulate interstate commerce.
This extremely popular decision opened the waters of America to competition. A jubilant Vanderbilt was greeted in New Brunswick, NJ, by cannon salutes fired by “citizens desirous of testifying in a public manner their good will.”
On the Ohio River, steamboat traffic doubled in the first year after Gibbons v. Ogden and quadrupled after the second year. The real value of removing the Fulton monopoly was that the costs of traveling upriver dropped. Passenger traffic, for example, from New York City to Albany immediately dipped from $7 to $3 dollars after the court decision.
Only governments can maintain and enforce a monopoly. And only a business with a government enforced monopoly can gouge their customers. For with the government eliminating all competition what else is a consumer to do? He or she has no choice but to buy from the business with the government enforced monopoly. The same is true today.
Free market capitalism is always finding a better way to do something that costs less. But people who enjoy government monopolies try to fight back. To keep their government privileges. Just look at the UAW and the automotive industry. Which used the power of their government privilege to restrict competition. Such as with tariffs and import quotas. Which only let the UAW to continue to burden the American automotive industry with ever more costly union contracts that ultimately led to their bankruptcy/government bailout. All the while keeping cars more expensive than they had to be. As the UAW used their government privilege to gouge American automotive customers.