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Rothbard on Mercantilism and State “Patents of Monopoly”

Some great excerpts from Rothbard regarding mercantilist grants of monopoly privilege. Sounds familiar—this is basically what today’s patent system does, too. Love the bit about a playing card monopoly in England (below). Also this part:

The creation of monopolies reached its climax in the reign of Queen Elizabeth (1558–1603), in the latter half of the 16th century. In the words of historian Professor S.T. Bindoff, “… the restrictive principle had, like some giant squid, fastened its embracing tentacles round many branches of domestic trade and manufacture,” and “in the last decade of Elizabeth’s reign scarcely an article in common use – coal, soap, starch, iron, leather, books, wine, fruit – was unaffected by patents of monopoly.”

In sparkling prose, Bindoff writes how lobbyists, using the lure of monetary gain, obtained royal courtiers to sponsor their petitions for grants of monopoly: “their sponsorship was usually a mere episode in the great game of place-and-fortune-hunting which swayed and swirled incessantly around the steps of the throne.” Once granted their privileges, the monopolists got themselves armed by the state with powers of search-and-seizure to root out all instances of now-illegal competition.

Of course, this is just what patent aggressors and the RIAA do now: they obtain monopoly privileges from the state, and use state law enforcement, subpoenas, warrants, etc. to search competitors or consumers for evasion of their privileges which could help undercut their monopoly prices.

Here are the more extended passages these are drawn from. First, from Rothbard’s Mercantilism as the Economic Aspect of Absolutism:

As the economic aspect of state absolutism, mercantilism was of necessity a system of state-building, of big government, of heavy royal expenditure, of high taxes, of (especially after the late 17th century) inflation and deficit finance, of war, imperialism, and the aggrandizing of the nation-state. In short, a politicoeconomic system very like that of the present day, with the unimportant exception that now large-scale industry rather than mercantile commerce is the main focus of the economy. But state absolutism means that the state must purchase and maintain allies among powerful groups in the economy, and it also provides a cockpit for lobbying for special privilege among such groups.

Jacob Viner put the case well:

The laws and proclamations were not all, as some modern admirers of the virtues of mercantilism would have us believe, the outcome of a noble zeal for a strong and glorious nation, directed against the selfishness of the profit-seeking merchant, but were the product of conflicting interests of varying degrees of respectability. Each group, economic, social, or religious, pressed constantly for legislation in conformity with its special interest. The fiscal needs of the crown were always an important and generally a determining influence on the course of trade legislation. Diplomatic considerations also played their part in influencing legislation, as did the desire of the crown to award special privileges, con amore, to its favorites, or to sell them, or to be bribed into giving them, to the highest bidders.[1]

In the area of state absolutism, grants of special privilege included the creation by grant or sale of privileged “monopolies,” i.e., the exclusive right granted by the crown to produce or sell a given product or trade in a certain area. These “patents of monopoly” were either sold or granted to allies of the crown, or to those groups of merchants who would assist the king in the collection of taxes. The grants were either for trade in a certain region, such as the various East India companies, which acquired the monopoly right in each country to trade with the Far East, or were internal — such as the grant of a monopoly to one person to manufacture playing cards in England. The result was to privilege one set of businessmen at the expense of their potential competitors and of the mass of English consumers. Or the state would cartelize craft production and industry and cement alliances by compelling all producers to join and obey the orders of privileged urban guilds.

It should be noted that the most prominent aspects of mercantilist policy — taxing or prohibiting imports or subsidizing exports — were part and parcel of this system of state monopoly privilege. Imports were subject to prohibition or protective tariff in order to confer privilege on domestic merchants or craftsmen; exports were subsidized for similar reasons.

See also Rothbard’s Mercantilism in England:

The principal fiscal weapon to build the nation-state in England was the “poundage,” a tax on the export of wool and a tariff on the import of woolen cloth. The poundage kept increasing to pay for continuing wars. In the 1340s, King Edward III granted the monopoly of wool exporting to small groups of merchants, in return for their agreeing to collect the wool taxes on the king’s behalf. This monopoly grant served to put out of business Italian and other foreign merchants who had predominated in the wool export trade.

… The Merchants of the Staple soon proceeded to use their privileged monopoly in the time-honored manner of all monopolists: to force lower prices upon English wool growers, and higher prices upon Calais and Flemish importers. In the short run, this system was quite pleasant for the Staplers, who were able to more than recoup their payments to the king, but in the long run, the great English wool trade was crippled beyond repair. The artificial gap between domestic and foreign wool prices discouraged the production of English wool while it also injured the demand for wool abroad. By the mid-15th century, average annual exports of wool had fallen greatly to only 8,000 sacks.

The only benefit to Englishmen from this disastrous policy (apart from the joint short-term gains to King Edward and to the Staplers) was to give an unintended boost to the English production of woolen cloth. English cloth-makers could now benefit from their artificially lower prices of wool in England, coupled with the artificially high prices of wool abroad. Once again, the market managed to get a leg up in its unending, zigzag struggle with power. By the mid-15th century, fine, expensive, broadcloth “woolens” were being produced abundantly in England, centering in the West Country, where swift rivers made water plentiful for fulling the woven cloth, and where Bristol could serve as the major port of export and entry.

During the mid-16th century, a new form of woolen-cloth manufacture sprang up in England, soon to become dominant in the textile industry. This was the “new draperies,” or worsteds, cheaper and lighter-weight cloth that could be exported to warmer climates and was far more suitable for dyeing and decoration, since each individual strand of yarn was now visible in the cloth.

Since the worsted was not fulled, the draperies did not need to be situated near running water, and so new textile manufacturers and workshops sprang up in the countryside – and in new towns such as Norwich and Rye – all round London. London was the largest market for the cloths, so transportation costs were now cheaper, and furthermore, the southeast was a centre for sheep bearing the coarse, long-stapled wool particularly suitable for worsted production. The new rural firms around London were also able to hire skilled Protestant textile artisans who had fled the religious persecution in France and the Netherlands. Most important, going to the countryside or to new towns meant that the expanding and innovating textile industry could escape from the stifling guild restrictions and frozen technology of the old towns.

Now that over 100,000 cloths were exported annually, compared to a few thousand two centuries earlier, sophisticated production and marketing innovations took place. Establishing a “putting-out” system, merchants paid artisans by the piece to work on cloth owned by the former. In addition, marketing middlemen sprang up, yarn brokers serving as middlemen between spinners and weavers, and drapers specializing in selling the cloth at the end of the production chain.

Seeing the rise of effective new competition, the older urban and broadcloth artisans and manufacturers turned to the state apparatus to try to shackle the efficient upstarts.

As Professor Miskimin puts it,

As often happens during an evolutionary period, the older, vested interests turned to the state for protection against the innovative elements within the industry and sought regulation that would preserve their traditional monopoly.

In response, the English government passed the Weavers’ Act in 1555, which drastically limited the number of looms per establishment outside the towns to only one or two. Numerous exemptions, however, vitiated the effect of the act and other statutes placing maximum controls on wages; restricting competition in order to preserve the old broadcloth industry came to naught from systemic lack of enforcement.

The English government then turned to the alternative of propping up and tightening the urban guild structure to exclude competition. These measures succeeded, however, only in isolating and hastening the decay of the old urban broadcloth firms. For the new rural firms, especially the new draperies, were beyond guild jurisdiction. Queen Elizabeth then went national, with the Statute of Artificers in 1563, which placed the nation-state squarely behind guild power.

… Prominent in English mercantilism was the pervasive creation by the Crown of grants of monopoly privilege: exclusive power to produce and sell in domestic and in foreign trade. The creation of monopolies reached its climax in the reign of Queen Elizabeth (1558–1603), in the latter half of the 16th century. In the words of historian Professor S.T. Bindoff, “… the restrictive principle had, like some giant squid, fastened its embracing tentacles round many branches of domestic trade and manufacture,” and “in the last decade of Elizabeth’s reign scarcely an article in common use – coal, soap, starch, iron, leather, books, wine, fruit – was unaffected by patents of monopoly.”

In sparkling prose, Bindoff writes how lobbyists, using the lure of monetary gain, obtained royal courtiers to sponsor their petitions for grants of monopoly: “their sponsorship was usually a mere episode in the great game of place-and-fortune-hunting which swayed and swirled incessantly around the steps of the throne.” Once granted their privileges, the monopolists got themselves armed by the state with powers of search-and-seizure to root out all instances of now-illegal competition. As Bindoff writes,

The “saltpetre men of the gunpowder contract dug in every man’s house” for the nitrate-laden soil which was their raw material. The minions of the playing-card monopoly invaded shops in search of cards lacking its seal and browbeat their owners, under threat of summons to a distant court, into compounding for their offences. The search-warrant was, indeed, indispensable to the monopolist if he were to eliminate competition and leave himself free to fix the price of his wares.

The result of this expulsion of competition, as we might expect, was the lowering of quality and the raising of price, sometimes by as much as 400 percent.

Update: See Mike Masnick’s Techdirt post:

RIAA Law Lets Law Enforcement Ignore 4th Amendment, Search Private Property With No Warrants

from the the-infringement-police dept

One of my favorite historical stories that really demonstrates how a “legacy” industry can take regulatory capture to extreme lengths to protect their monopoly rights is the story of the French button-makers guild in 1666, as relayed by famed economic historian Robert Heilbroner:

The question has come up whether a guild master of the weaving industry should be allowed to try an innovation in his product. The verdict: ‘If a cloth weaver intends to process a piece according to his own invention, he must not set it on the loom, but should obtain permission from the judges of the town to employ the number and length of threads that he desires, after the question has been considered by four of the oldest merchants and four of the oldest weavers of the guild.’ One can imagine how many suggestions for change were tolerated.

Shortly after the matter of cloth weaving has been disposed of, the button makers guild raises a cry of outrage; the tailors are beginning to make buttons out of cloth, an unheard-of thing. The government, indignant that an innovation should threaten a settled industry, imposes a fine on the cloth-button makers. But the wardens of the button guild are not yet satisfied. They demand the right to search people’s homes and wardrobes and fine and even arrest them on the streets if they are seen wearing these subversive goods.”

It’s not hard to see the RIAA or the MPAA in that description of the old guilds, and it seems like they’re trying to take the comparison even further. As we covered back in May, the RIAA has been pushing really, really hard for California to pass a law that would allow for warrantless searches of private property, specifically of anyone involved in reproducing CDs or DVDs for “commercial” purposes. The RIAA was so cavalier about this, that a spokesperson even said: “I don’t think the scope of the search is something a regulator needs to be worried about.” In other words, no government oversight. Just go ahead and search private businesses.

This seemed to be so obviously against the 4th Amendment that it seemed ridiculous that anyone would seriously consider such a bill. So, of course, Governor Jerry Brown of California just signed it into law. The law decimates the 4th Amendment, and says that law enforcement has the right to search the premises of anyone making optical discs for commercial purposes, without any warning or warrant. Hell, even the state’s own analysis of the bill warns that it’s not sure that the bill “would stand up to constitutional scrutiny.”

It’s beginning to sound like the French button makers guild getting to enter your homes and closets to find those dreaded “non-compliant” buttons. It’s getting so ridiculous that even those who are generally supporters of the RIAA/MPAA’s positions are saying this bill goes way too far, noting that it grants way too much power to law enforcement (often at the urging of private industry) to go on “fishing expeditions” at companies they dislike. And let’s not even get started on what kind of precedent it sets when you can so easily remove the Constitutional requirement for a warrant.

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To the extent possible under law, Stephan Kinsella has waived all copyright and related or neighboring rights to C4SIF. This work is published from: United States. In the event the CC0 license is unenforceable a  Creative Commons License Creative Commons Attribution 3.0 License is hereby granted.