Quotation of the Day…

by Don Boudreaux on July 27, 2020

in Competition, Creative destruction, Crony Capitalism, History, Myths and Fallacies

… is from page 99 of the 1975 HarperPerennial printing of the third (1950) edition of Joseph Schumpeter’s profound 1942 volume, Capitalism, Socialism, and Democracy (original emphasis):

[P]ure cases of long-run monopoly must be of the rarest occurrence…. The power to exploit at pleasure a given pattern of demand – or one that changes independently of the monopolist’s actions and of the reactions it provokes – can under the conditions of intact capitalism hardly persist for a period long enough to matter for the analysis of total output, unless buttressed by public authority. A modern business concern not so protected … and yet wielding that power (except temporarily) is not easy to find or even to imagine.

DBx: Schumpeter correctly observes that history provides few, if any, instances of true monopoly power arising on free markets – that is, of free markets fostering the power of suppliers to profit while nevertheless failing to improve consumer welfare as much as possible.

History does provide countless examples of free markets holding suppliers’ feet to the competitive fires, and of many suppliers thus complaining that this competition is “unfair” or “predatory.” History does provide many examples of firms growing large and profitable by being unusually creative and adept at satisfying consumers’ demands. And, of course, history also provides many examples of both the innocently uninformed and of the venal seekers of rents alleging that today’s successful competitors are really “monopolists” that, unless they be suppressed by the mighty forces of the angelic and genius state, will wreak havoc on the economy for decades to come.

But, again, history provides no examples of sustained monopoly power arising out of any source other than government-granted special privileges.
…..
Some readers might be surprised that I chose to use above an image of Standard Oil. This surprise, however, owes not to actual history but to history misrepresented. Standard Oil, even at its peak – and even on the eve of being “busted” by the U.S. government (when, by the way, its economic peak had long since passed) – never had monopoly power.

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