“Is Government the Source of Monopoly?” asked Chicago economist Yale Brozen in an essay first published in 1968. Yes, he answered – not only directly, by awarding exclusive licenses and contracts, but also indirectly, via regulation, minimum-wage legislation, and other forms of government intervention. Austrian economists such as Murray Rothbard and Dominick Armentano went further, arguing that monopoly per se is impossible on the free market, as long as government does not restrict entry into markets. More successful firms will tend to grow and increase their market share, but this does not constitute monopoly, as long as other firms are free to compete, or try to compete. The concept of monopoly only makes sense, theoretically and empirically, when the government protects privileged firms from competition, either directly or through the kinds of indirect means discussed by Brozen.
I recently came across a lucid example of government-created monopoly in Thomas Petzinger excellent book Hard Landing: The Epic Contest for Power and Profits That Plunged the Airlines into Chaos (Crown, 1996). Petzinger explains the emergence of the US commercial airline industry in the 1930s as the result of efforts by Walter F. Brown, Postmaster General in the Hoover Administration, to reorganize the nascent airmail business.
This post was published at Ludwig von Mises Institute on June 17, 2017.