December 2, 2010

The Mount Vernon Statement & Oligopolies

In February 2010 a group of modern day conservatives headed by Edwin Meese, former U.S. Attorney General under President Reagan published the Mount Vernon Statement. The phrase Constitutional conservatism is based on the following principles.
  • It applies the principle of limited government based on the rule of law to every proposal.
  • It honors the central place of individual liberty in American politics and life.
  • It encourages free enterprise, the individual entrepreneur, and economic reforms grounded in market solutions.
  • It supports America’s national interest in advancing freedom and opposing tyranny in the world and prudently considers what we can and should do to that end.
  • It informs conservatism’s firm defense of family, neighborhood, community, and faith.
I cannot imagine any of my friends and associates being against any of these principles except to say I am in favor of free enterprise in free market solutions. The market must be free; free from too much governmental interference and free from control by monopolies and oligopolies. The argument will be in the details.I don't hear any of the signers of the Mount Vernon Statement demanding that free markets be protected from the tyranny of monopolies and oligopolies. In 1776, the same year in which this country was founded, Adam Smith wrote his book Wealth of Nation.  in which he discussed free markets. 

His definition was that it was in the common good that markets should be kept free where many producers are looking out for their rational self interest by providing the best products available and the lowest prices possible. In turn, in these free markets their would be many consumers looking out for their rational sefl-interest by buying the best products at the lowest prices from the most efficient producers. If a producer cannot compete, he will be out of business.

The problem in today's markets is that many of them are not free. There are not many producers and therefore their rational self interest is not always the pursuit of offering the best products at the lowest cost possible. If you are the only producer of guplas and there is an unlimited demand for guplas you are going to raise your prices to the point of where the demand is limited to the amount that you can presently produce. In addition you are going to do everything in your power to prevent anyone else from producing guplas. This is what would be in your rational self interest.

Over the last four decades many corporations have managed to control major industries and thus destroying free markets. Monopolies and oligopolies are as much or more of a villain to free markets as is government. A good example of this is the auto industry.

In the 1950's the American auto industry began to form an oligopoly between General Motors, Ford, Chrysler and the UAW. The rest of the world was in shambles because of World War II and therefore could not complete. The domestic auto industry began to lose focus on producing the best cars at the lowest possible price because it was in their rational self interest to keep the oligopoly alive, lower quality standards and raise prices. This worked fine for the industry until foreign competition became stronger and the end result was that in 2008 the auto industry was in near collapse and had to be bailed out by the government.

Today the banking industry, health insurance industry, Wall Street and others are dominated by oligopolies. Where are the signers of the Mount Vernon Statement fighting against the tyranny within our "free markets".

Even Milton Friedman, the great conservative economist, recognized that government needed to play a role in our free market system. That role is one of an umpire or referee. so that a small group of companies are not able to destroy free markets. 

I am all in favor of free markets. Let's fight hard to keep them free of too much government intervention and too much control by a handful of powerful companies.

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