Monopolies Across Time: From Tea to Electricity

 Monopolies Across Time

From Tea to Electricity

Written By: Ian Franda 

In the 19th century, a man drags crates of freshly picked tea onto the deck of an enormous ship, a British flag waving lazily in the wind over his head. In 2020, a similar man steps into an office and flicks the light switch on, the click resounding throughout the room. What do these two activities have in common? If you’ve read the title of this post, you’ve probably already guessed it: monopolies!

The concept of a monopoly is not new. Historically, monopolies have been common, the most famous of which are the megacorporations of the late 19th century in the United States. Modern-day monopolies are much less common, but the most notable example is in the electricity industry. While at first glance, it is tempting to assume that historical monopolies are similar to modern examples. However, comparing them turns out to be more nuanced than one might expect. Most importantly, the role governments play in the creation and management of monopolies have shifted immensely. Historically, governments have commonly supported monopolies, seen through practice of a policy called Mercantilism. Today, however, most governments typically work to restrict monopolies when possible, as seen through the regulation of utility services.

Until the 20th century, many governments, most often in Europe, viewed monopolies as an important way to control the economy. This view categorizes well into the theory of mercantilism, the belief that governments need to take control of their economy in order to bolster their country at the expense of rival nations. Under the policy of mercantilism, imperial powers manipulated their markets to exploit their colonies as much as possible. Two techniques in particular directly affected market structures: restrictions on colonial subjects and state sponsored monopolies (Mercantilism). For example, under the policy of mercantilism, Great Britain passed the Hat Act that forbade manufacturing of hats in its colonies that competed with British manufacturers (Hat Act). By shutting down firms in colonies, Britain reduced the number of firms in the industry, decreasing the supply. The effects of the decrease in supply is shown in the graph to the right.  

The equilibrium price rises, giving a greater profit to British manufacturers. In this way, the British government interfered with what would have been a competitive market. In a more extreme example, Britain established a state sponsored monopoly with the creation of the British East India company. Britain gave it the freedom to control trade between British colonies, protecting it from competitors by outlawing any other trade from its colonies. This allowed the company to charge a price above the equilibrium price for imported goods, giving it immense profit at the expense of its consumers. It is this monopoly on imports in the British Empire that allowed Britain to raise prices on tea in the United States. These monopolistic practices generated resentment in the United States, which culminated in the Boston Tea Party, which signified a major change in public attitude towards monopolies (Boston Tea Party). Until then, mercantilism was the leading practice in most of the world. In this way, governments, notably the government of Great Britain, interfered with the economy greatly, believing it was the best way to benefit their country.

Today, however, things work differently. Most countries, including the United States, believe that the economy is run best by a competitive market. In theory, a competitive economy is the most efficient at producing and allocating resources, because it allows the market to adjust to the optimal price on its own. As a result, most governments today will work to limit monopolistic practices. One clear example of this is the regulation of We Energies. Because electricity needs to be hooked up through wires, it is inefficient to have companies competing for customers. If electricity were run in a competitive market, services would have to rework the wiring every time customers changed suppliers. As a result, in most States electricity production is run by a monopoly. This can be dangerous, however, since monopolies can exploit their customers easily, especially for such a widely used good like electricity. To prevent exploitation, governments impose restrictions on electricity companies (Janice). For example, the government of Wisconsin must approve the practices of We Energies before it can adjust prices or make any major decisions. The government will refuse any attempts We Energies would make to exploit its customers or abuse its powers as a monopoly. In stark contrast to historical European mercantilism, the US government is using its power to limit monopolies instead of promote them. 

The difference between government actions taken today and government actions taken during the 17th, 18th, and 19th centuries is evidence of how much economic thought has changed in the past 200 years. Most economists today believe that trade and competition is mutually beneficial, and that governments should work to regulate monopolies, rather than promote them. However, one’s view on economics depends greatly on perspective. In the 18th century, most people truly believed that mercantilism was the most effective practice. It is interesting to wonder if someday people would look back on today’s practices the same way we look back on mercantilism. It is likely that we have not found the most effective economic practices, and that 200 years from now the consensus will change again.

Works Cited

Beecher, Janice A. Economic Regulation of Utility Infrastructure, www.lincolninst.edu/sites/default/files/pubfiles/economic-regulation-of-utility-infrastructure_0.pdf. 

“Boston Tea Party.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., 11 Mar. 2020, www.britannica.com/event/Boston-Tea-Party. 

“Hat Act.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., 5 Apr. 2018, www.britannica.com/event/Hat-Act. 

“Mercantilism.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., 13 May 2020, www.britannica.com/topic/mercantilism.