Virtually Every Aspiring Monopolist in the Country Tried to be Designated a "Public Utility," Including the Radio, Real Estate, Milk, Air Transport, Coal, Oil, and Agricultural Industries

Legislative "regulation" of gas and electric companies produced the predictable result of monopoly prices, which the public complained bitterly about. Rather than deregulating the industry and letting competition control prices, however, public utility regulation was adopted to supposedly appease the consumers who, according to Brown, "felt that the negligent manner in which their interests were being served [by legislative control of gas and electric prices] resulted in high rates and monopoly privileges. The development of utility regulation in Maryland typified the experience of other states."

Not all economists were fooled by the "natural monopoly" theory advocated by utility industry monopolists and their paid economic advisers. In 1940 economist Horace M. Gray, an assistant dean of the graduate school at the University of Illinois, surveyed the history of "the public utility concept," including the theory of "natural" monopoly. "During the nineteenth century," Gray observed, it was widely believed that "the public interest would be best promoted by grants of special privilege to private persons and to corporations" in many industries. This included patents, subsidies, tariffs, land grants to the railroads, and monopoly franchises for "public" utilities. "The final result was monopoly, exploitation, and political corruption." With regard to "public" utilities, Gray records that "between 1907 and 1938, the policy of state-created, state-protected monopoly became firmly established over a significant portion of the economy and became the keystone of modern public utility regulation." From that time on, "the public utility status was to be the haven of refuge for all aspiring monopolists who found it too difficult, too costly, or too precarious to secure and maintain monopoly by private action alone."

In support of this contention, Gray pointed out how virtually every aspiring monopolist in the country tried to be designated a "public utility," including the radio, real estate, milk, air transport, coal, oil, and agricultural industries, to name but a few. Along these same lines, "the whole NRA experiment may be regarded as an effort by big business to secure legal sanction for its monopolistic practices." Those lucky industries that were able to be politically designated as "public utilities" also used the public utility concept to keep out the competition.

--Thomas J. DiLorenzo, "The Myth of Natural Monopoly," Review of Austrian Economics 9, no. 2 (1996): 48-49.