March 11, 2022

Natural Monopolies

By Glenn

In 1776, Adam Smith published a ground breaking book, The Wealth of Nations. Smith introduced the French phrase laissez-faire to the English speaking world.  The phrase best translates as “free market.”

Smith criticized European monarchs for subsidizing domestic production and granting monopolies for foreign trade. He argued that monarch redistributed income from small farmers and artisans. Removing the subsidies and monopolies would allow the little guy to compete fairly.

The justification for laissez-faire remains the same.  The reality, however, is much different.   American policy makers only follow laissez-faire when it hurts big business, but they interfere in the economy to help big business. 

This pattern started with first real national corporations.  Federal and state governments leapt to the aid of railroads. Both gave these corporations large tracks of land as capital to finance construction.  The railroads then sold the land to developers along the tracks.

In the town along the railway, farmers and ranchers had to deal with a whole new set of monopolies.  Obviously, there was only one railroad company in town, but there was also only one stockyard, one grain elevator and one bank.

These monopolies could, and often did, squeeze every bit of profit out of farming and ranching.  Farmers and ranchers complained about unfair market practices, and they want government protection.  The free market was crushing them.


Granger warns a sleeping America about consolidation and monopolies.

The cries for help were drowned out by big businesses’ crocodile tears. American oligarchs loved their natural monopolies and didn’t want the government helping anyone else.

Making matters worse, farmers and ranchers faced global competition.  While the owners of railroads, stock yards, grain elevators and banks controlled a local monopoly, food products traded in a distant commodities market. 

Once the product left the farm or the ranch, the producers lost control.  Prices now depended up regional, national and even global supply.  Traders knew the numbers and bid to keep their own cost down, leaving less money in the pockets of farmers and ranchers.

The New Deal tried to remedy this imbalance.  At the height of the Great Depression, voters turned to Franklin Delano Roosevelt.  FDR ignored the screams of big business.  The reforms FDR introduced stabilized rural communities for generations.  Some like Social Security still provide a steady stream of income.

Unfortunately, Ronald Reagan sold the free market snake oil in the 1980s.  Protections for family farms and ranches vanished.  Large commercial farms and processors replaced small businesses.  Thanks to conservatives Rural America again faces big business alone.

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