2017-09-14

The Eric Tetralogy: 4: Ideas as Monops

A subsaga of FTC the Fairy Tale of Capitalism

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Hansen, "Coronation of Eric of Pomerania" (1884, Public Domain)
Who could object when governments, such as Elizabeth I of England and Eric of Pomerania, granted or allowed Monops to their subjects, their citizens or themselves? Complaints did arise, as we saw a few episodes back. The government receives the loyalty of the Monop, possibly taxes or part ownership, political campaign contributions, opportunity to trade on the Exchange in advance of news, and perhaps some undisclosed deposits in foreign bank accounts. The Monop receives suppresson of competitors by the coercive powers of government. As with all fair trades, both parties gain benefits from the trade. Some governments, citing the peoples’ right to pursuit of happiness, didn’t generally require advance grant of permission to operate a Monop, and benefits to government weren’t visible.  


Each gets something valuable in the trade for something less valuable. From where do complaints arise? While the counterparties to a trade do benefit, the trade may have pros and cons, called “externalities”, for people who don’t participate in the trade. If your neighbor establishes a bakery on her premises, you may enjoy the “free ride” (positive externality) of delicious aromas when she removes bread from the oven each morning, though you never buy anything. If your other neighbor establishes an unlicensed retail pharmacy, though you never buy the wares, you may suffer the negative externality of strange people shooting each other in your neighborhood at all hours to resolve customer service issues.

The Monop’s customers don’t participate in the cozy trade between the Monop and the government. With each customer trade, the Monop gathers Rent, which diminishes the net benefit the customers receive. Their diminution of benefit, which Sam Adams called tantamount to tax, is a negative externality of the Monop’s trade with the government.

With sufficient political opposition to negative externalities, governments acted against Monops. Sometimes, governments broke them up into multiple smaller firms, as with Standard Oil Company and AT&T. Among other actions were monetary fines, regulation, mandated sharing of intellectual property or changes in operations, requiring compatibility with component parts from other companies, and disclosure of secret business information and software.

On the other hand, governments protected, even enabled, some Monops, like the IPRs we mentioned in the last episode. A government granted to an applicant an IPR on an idea. Of course you know what an idea is. You probably had an idea recently, like today, and maybe it was “original”, that is, no one ever thought of it before. The government granted IPRs only for original ideas. If a person had an IPR, then government protected the idea like property, and no one could use the idea without permission from the holder of the IPR. Before governments began granting IPRs, anyone could use a idea, whether they thought of it themselves or knew of it from someone else.

With the IPR, the protected idea became artificially scarce, thus enabling a Monop. Before the great wars, the grand Monop J. P. Morgan said

A man always has two reasons for what he does --
a good one and the real one.

J. P. Morgan (Public Domain)
The “good” reason for IPRs was to reward persons with good ideas by giving them a potentially lucrative Monopoly, and the reward would enable people to think. Security had to escort out a few impolite people who observed that humans thought for thousands of years before IPRs were granted. The “real” reason, of course, was the IPR allowed unlimited income from Monopoly Rents. After the great wars, the most esteemed dean of the Staffs, himself an unintelligible Economist, asserted that “conceptual products” (IPRs) increasingly dominated “the economy” (GDP). The Staffs acquired and tended and leased IPRs for their client Aristocrats, thereby increasing Firehose Up capacity, making more likely they could describe increasing after-tax income in their quarterly reports to their Aristocrats, and thus Staffers anticipated enhanced future personal income.

If 40% of the workers in a small town work for your company and can’t easily get jobs elsewhere, or if you own nearly all the oil refineries in America, or if no one can buy tea unless they buy it from your company, or if 90% of all new computers won’t work except with software sold by your company, or if every telephone call runs through your company’s switching network, or if all the merchant vessels must pass through your strait and pay your toll, then you have a Monop, by which the Firehose Up delivers a stream of Rents to you.

As a professional courtesy, the other Great Powers didn’t object to the negative externalities of King Eric’s magnificent Monop, for they also had Monops to enrich their treasuries and keep their wealthier nobles compliant.

Further, the monarchs tempered professional rivalries with nepotism. When Eric was in his twenties, his aunt Margaret arranged Eric’s marriage to the twelve-year-old Princess Philippa of England. Their marriage continued 24 years. Philippa died.

Love blossomed publicly between the recently widowed Eric and Philippa’s lady-in-waiting, the beautiful Cecilia, scandalizing the kingdom. Seeking relief from the critics, Cecilia wed Eric with a brief pre-nuptial agreement by which she got nothing but Eric, which was all she wanted. But the scandalmongers persisted. Ten years after Philippa’s death, exasperated, Eric said “Cecilia, the scene drags. Let’s split.” Cecilia said “We can’t. You’d lose the Sound Dues Monop and the throne.” Eric said “But I’ll have you.” Cecilia gasped and threw herself into his arms.

He was heard to mutter something like “fake news”, and off they went to Visby on the island of Gotland in the Baltic Sea, a centuries-old pirates’ and smugglers’ hideout. Supposing the ever-intemperate Eric had yet another tantrum, the nobility waited for him to return to Copenhagen. But he didn’t. Eric took up piracy. The nobility elected Christopher of Bavaria to the throne.

Epilog

Monops are components of the Firehose Up, conveying streams of Rents extracted from trade counterparties. The Monop gets a better price than would prevail in competitive markets.

Tea Party votes politically supported Staff efforts to enhance the Firehose Up, the Aristocracy’s stream of income.

Royal officers collected the Oresund Sound Dues until, four centuries later, Denmark limped, diminished by wars. The Great Powers demanded and got zero toll for their vessels, in exchange for a one-time payment. Likewise, the young government of the United States paid $400,000, which was less costly than sending a warship to Denmark. Made ineffective, the Sound Dues Monop ended.

In Eric’s time, a contemporaneous Silk Road bandit might have started with ambushing travelers in a defile, then building a fortress on a high hill to secure the takings, then driving competitors from the lands visible from the fortress, then establishing orderly customs houses for bloodless loot collection at the periphery of lands he claimed. He would end his life the greatest and most serene of kings.

But Eric lived his kaleidoscopic adventures in reverse. He ended his life a pirate commandeering merchant vessels in the straits, preceded that with a levy on travelers passing his tax collector in the fortress at Helsingor. Before that were wars with contentious foes, and he began his life as the splendid dashing Prince and King of the unsurpassed Kingdom of Denmark, Norway and Sweden.

In our future episodes of FTC the Fairy Tale of Capitalism, we’ll meet Ayn Rand and Karl Marx and tell the story of the Downward Trickle, the Aristocracy’s waste stream.

The Workers told their children that money can’t buy love.

Thus ends the Eric Tetralogy. Cecilia and Eric lived happily every after.



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I appreciate friends. Their criticisms of prepublication drafts improved FTC.



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