The US Postal Service is a frequent target of those seeking to privatize public assets.
In 1960, Milton Friedman's Capitalism and Freedom argued for what Friedman defined as a smaller government. Claiming private industry does things better, he specifically advocated eliminating the the United States Postal Service's mail monopoly. For his proof private mail service works better? Friedman claimed the USPS killed the Pony Express.
“The historical reason why we have a Postal Service monopoly is because the Pony Express did such a good job of carrying the mail across the continent that, when the government introduced transcontinental service, it couldn’t compete effectively and lost money. The result was a law making it illegal for anybody else to carry the mail."
Capitalism and Freedom, Ch 2, pages 29-30 (1982 paperback edition)
Friedman is not correct. The USPS monopoly was established in 1792, 70 years before the Pony Express existed.
In its first 100 years, the USPS almost always made money. On the other hand, the Pony Express, in business only 2 years, always lost money and went bankrupt.
If Friedman were correct, and the USPS killed the supposedly "more efficient" Pony Express, one wonders why the USPS allowed the profitable American Express and Wells Fargo companies to survive.
Friedman sort of has one fact right: the Pony Express closed the day after the first trans-continental telegraph was sent. That ended the Pony Express business: electric current moves faster than horses. Who paid for that innovation? The United States Postal Service.
Despite Friedman's and the highly marketed current slanders, the USPS has a long history of innovation and sound business practices. It made money for its first forty years. It could make money now if Congress directed it to do so.
As for killing the Pony Express? Well, those who believe men on horseback can deliver messages over around a thousand of miles of mountains and deserts more efficiently than a telegraph line, should support Milton Friedman's conclusions.
The rest of us should properly conclude Friedman, however loved by certain plutocrats, seems like a real idiot.
The interesting question is how an intellect of Friedman's level could make such gross blunders. The most logical explanation is that someone paid Friedman for academic cover: they wanted to "privatize" the profitable portions of our United States Postal Service. Good for those few; Bad for rural America as the profitable city routes have been subsidizing rural mail delivery since the USPS was made a monopoly by our Founding Fathers, back in 1792.
Despite its obvious flaws, many such as the Cato Institute, regularly denigrate our postal service and, citing Mr. Friedman, advocate selling its functions to privately held interests.
More details follow below the fold.
Economist Milton Friedman says that he soured on big government programs in the FDR years. In 1962, he published Capitalism and Freedom. It has become a right wing bible. It’s a nuanced work. Friedman’s basic thesis is that private enterprise is more efficient and provides more personal liberty than government programs providing the same services. Friedman admits of exceptions. For example, he thought anti-trust laws economically sensible.
One thing Friedman disliked was the United States Postal Service and its monopoly on most mail services. Friedman wrote:
“The choice between evils of private monopoly, public monopoly and public regulation cannot, however, be made once and for all, independent of the factual circumstances. If the technical monopoly is of a service or commodity that is regarded as essential and if its monopoly power is sizable, even the short run effects of a private unregulated monopoly may not be tolerable, and either public regulation or ownership may be a lesser evil.
“Technical monopoly may on occasion justify a de facto public monopoly. It cannot by itself justify a public monopoly achieved by making it illegal for anyone else to compete. For example, there is no way to justify our present public monopoly of the Postal Service. It may be argued that the carrying of mail is a technical monopoly and that a government monopoly is the least of evils. Along these lines, one could perhaps justify a government Postal Service but not the present law, which makes it illegal for anybody else to carry mail. If the delivery of mail is a technical monopoly, no one will be able to succeed in competition with the government. If it is not, there is no reason why government should be engaged in it. The only way to find out is to leave other people free to enter.
“The historical reason why we have a Postal Service monopoly is because the Pony Express did such a good job of carrying the mail across the continent that, when the government introduced transcontinental service, it couldn’t compete effectively and lost money. The result was a law making it illegal for anybody else to carry the mail. That is why the Adams Express Company is an investment trust today instead of operating company. I conjecture that if entry into the mail-carrying business were open to all, there would be a large number of firms entering it and this archaic industry would become revolutionized in short order.”
“In closing this chapter, some activities currently undertaken by the government in the U.S., that cannot, so far as I can see, validly be justified in terms of the principles outlined above:
13. The legal prohibition on carry of mail for profit.
14. Publicly owned and operated toll roads, as noted above.”
“There is no way to justify our present public monopoly of the Postal Service. It may be argued that the carrying of mail is a technical monopoly and that a government monopoly is the least of evils. Along these lines, one could perhaps justify a government Postal Service, but not the present law, which makes it illegal for anybody else to carry the mail. If the delivery of mail is a technical monopoly, no one else will be able to succeed in competition with the government. If it is not, there is no reason why the government should be engaged in it. The only way to find out is to leave other people free to enter.”
—Milton Friedman, Friedman, Milton & Rose D. Capitalism and Freedom, University of Chicago Press, Citations to 1982 Edition, Idem chapter 2, pages 29-30
Another right wing myth. The brave Pony Express Company killed by the big bad US government. It’s baloney:
• The USPS monopoly on carrying the mail was enacted in 1792, more than sixty years before the Pony Express existed, enacted unanimously as a monopoly by the US Founders. Strong post office supporters included Benjamin Franklin and George Washington.
• Profits from the USPS were used to begin the United States road system. For example, the Boston Post Road evolved into one of our first major highways. By 1850, the USPS profits had been used to establish 178,000 miles of roads.
• Although Friedman derides the mail service as “archaic” in fact the USPS should be justly famous for its constant innovation and new products. One was the telegraph. Like any big company, service can always be improved and criticisms are easy.
* The Pony Express started in 1860 to operate a single mail route, from St. Joseph Missouri to Sacramento, California. It relied on the USPS to deliver the mail from that point on. By 1815, the USPS profitably operated more than 3,000 post offices; had built 44,000 miles of post road; and had thousands of routes. By 1850, the USPS had 18,417 post offices and had pioneered 178,000 miles of roads. For Friedman to opine that the Pony Express--operating a single mail route--was truly "competing" with the already vast USPS is a ridiculous assertion.
* Friedman ignored easily verifiable facts. For example, Hafen, The Overland Mail 1926, provides an overview of the US Western Mail expansion. Hafen includes direct quotes from Congressional debates about the postal service. Overland mail delivery of the time had problems with Indian Wars and theft by the early Mormon settlers, who blamed the Indians.
The Overland Mail chapter 6 "Should the Postal Service be a Pioneering Agency or a Business Undertaking?, Hafen quotes the Congressional debates held in 1859-1860 as to what function the USPS should have. (The Eastern states were subsidizing the Western mail deliveries).
If it is possible for reasonable minds to differ, then Friedman's blanket "government bad" assertion is not correct--and incorrect for Friedman to believe that the Pony Express could realistically compete with the Western USPS government subsidized mail routes unless the US government and the USPS acquiesced.
An honest American would have offered specific recommendations for USPS improvements. Not sell the public asset of a proven money earner.
• The US Postmaster during the 1950’s was Arthur Summerfield, a successful Michigan businessman appointed by Eisenhower, who spent 8 years as post master, time he spent working to modernize USPS business practices. In 1960, Summerfield wrote US Mail: The Story of the United States Postal Service. Friedman’s 1962 work ignores Summerfield's 1960 book completely.
* Summerfeld writes about the USPS business model. One of the world's largest companies, its expenses must be estimated 2 years in advance; even so, Summerfield explains the USPS lost money during the 1950's only because it could not raise prices like a normal business. He urged that Congress meddle less. For example, by mandating a profit and then allowing the USPS discretion to set pricing. (This directive was debated by Congress several times, one instance being in 1857-1859 as the Western states became more populated).
* Although Friedman touts private enterprise as far superior to government providing the same services, he omits the fact the same people work in the private sector and government. Summerfield, the most recent USPS postmaster, was a successful businessman himself before heading the USPS. The man who appointed him, General Dwight Eisenhower is famous for his organization and talent recognition (as well as his ruthless firing of men not up to their jobs) as proved during World War II. Throwing stones is easy; Friedman should have explained why he believed Summerfeld (and his management team, all formerly of private industry) went from being highly regarded successful businessman when working in the private sector to somehow become suddenly incompetent upon joining the USPS.
• The Pony Express was never profitable. It went bankrupt within two years; its owners avoided jail terms for financial fraud only because the Civil War ensued. (The Pony Express owners’ previous company went bankrupt after the newly Utah arrived Mormons stole their mail carrying wagon trains. Or so the owners said. The Mormons blamed the local Ute Indians.) Friedman's conclusion that an unprofitable business, which lasted less than two years, went bankrupt, and its owners pilloried for fraud (they were not charged only because the Civil War ensued) somehow shows the usually profitable USPS is a bad idea is an unsupported and poorly taken position.
• The business plan for the Pony Express required they win a USPS mail delivery contract. Friedman was apparently unaware that, since its founding, the USPS was famous for trying new business practices, many of which proved successful and are still used today. Additionally, since its inception, the USPS has regularly hired private companies for particular mail routes. This practice was especially prevalent before 1900, a fact of which Friedman--writing in 1962--was apparently not aware since he ignored, among other things, Hafen's 1926 work, Summerfield's 1960 work, and any other fact relating to the USPS. The business plan failed when the Pony Express was unable to secure a government contract--and this thing called the "telegraph" was established nationwide when financed by what Friedman believes is an incompetent government.
• The Pony Express lost out on the USPS mail contract because Southerners prevailed on Congress to hire a private company using a route through Texas. And because of the telegraph.
• According to its owners and contemporary reports, the Pony Express was put out of business by the telegraph. The day after the first message was transmitted by wire from St. Louis to San Francisco, the Pony Express shut down.
• Benjamin Franklin, the first US Postmaster, held one of the first patents for telegraph message delivery. There were several inventors and patents. Samuel Morse the primary builder.
• The government, party through the USPS, devoted substantial resource to develop the telegraph. Congress funded Samuel Morse’s first wire line.
• In 1845, Morse hired Andrew Jackson's former postmaster general, Amos Kendall, as his agent to raise money for his nascent telegraph company. Morse, at least, thought government employees competent.
• While Friedman derides the government as lacking competence, in 1860, Congress passed the Pacific Telegraph Act, which authorized the Secretary of the Treasury to seek bids for a project to construct a transcontinental line. This was done. The US government paid for the first transcontinental telegraph line to supply mail service to the West. And once in place it was far more efficient than the proposal the messages be delivered by horseback.
* Also apparently unknown to Milton Friedman when concluding the USPS killed the Pony Express besides this thing called a "telegraph" was an invention called the "railroad." The first transcontinental railroad was completed to San Francisco, California in 1869. Friedman probably would differ, but others might think the "railroad" might have impacted the Pony Express's business model.
• Prior to the overland routes being completed, mail was delivered most cheaply from East Coast to West Coast by boat. The overland route was touted as faster. But the Pony Express had to charge a lot more for its service. This simple fact explains why the Pony Express's short lasting business was never profitable. Perhaps being unable to process facts like these explains why Milton Friedman, despite accolades from some, has no record of either investing success or operating any business.
Friedman’s other USPS criticisms are similarly flawed.
Of course it would be easier for the USPS to only make mail deliveries within the easiest routes. Say between Boston and New York. That is what a private company would likely do. And then charge far higher rates for delivery to places off those routes.
But at the USPS's formation in the 1790's, Congress resolved that they wanted the USPS to deliver mail to everyone in the United States. While debated and tweaked several times, that has remained the USPS's aim and business model: to use the profitable city routes to subsidize the more expensive rural mail delivery.
Congress has consistently directed the USPS to model its business so that the profits from the city routes (where delivery is far easier because people live closer together and so profit can be made on mail volume) subsidize mail delivery in the rural areas. Congress debated this issue several times.
For example, Senator Seward of New York in the 1857-1859 debates argued that the western mail routes should be subsidized so as to benefit the entire union. Seward explained: "I regard the inland postal system as a great instrumentality for maintaining, preserving and extending this Union."
An enterprise as large as the USPS needs constant adjustment to meet changing business circumstances. It is no doubt true it has from time to time has run into financial trouble. The first time the USPS showed a loss was when President Jackson and his party abolished the central bank and plunged the country into depression.
However, this is not a problem unique to governments. Large businesses also run into financial troubles. All entities must constantly adjust to changing conditions. Friedman’s antipathy to the USPS difficulties is not well taken when compared to its longer history of successes and its mandate to provide better service throughout the country rather than maximizing its profits as a private company does.
Friedman’s lack of knowledge about the USPS is quite stunning. In this relatively easy to verify situation, Friedman's harsh opinion despite lack of basic facts qualifies him as an intellectual fraud. His failure to consult the USPS, to read Summerfield's book, or to check facts with other historians such as Hafen is not excusable.
If Friedman's work cannot be trusted on something as relatively simple and easily verifiable as facts surrounding the USPS and the Pony Express, it calls into question Friedman's judgment on any other economic issue he cared to opine. Why well funded influential think tanks such as the Cato Institute and the American Heritage Institute is best explained by who pays for them to exist.
Whatever Friedman's motivations, Friedman's antipathy to the USPS persists as a Republican mainstay. Friedman's work has been used to justify Republican efforts to privatize the USPS by selling off all or part of its $65 billion a year business. For example, a recent Cato paper made the same obvious arguments Friedman made (A private business can cherry pick the good routes. It is easily understood that it is more efficient for a business to deliver daily mail to 200 people living in one building in Manhattan than to 200 people who live miles apart in Iowa).
Around page 30 of the Cato article, the author admitted that a more efficient model is not possible where the US government tries to give everyone affordable mail access. That is the primary point. It should be made in the opening sentence.
In 1999, Frederick Smith, founder of Federal Express echoed Friedman, writing:
I am sorry to report that in the recent past the U.S. Postal Service has exhibited the same lack of judgment that proved so costly to Charles I by overextending its authority beyond that which was intended by Congress when in 1871 it gave the Post Office a monopoly on the transportation of letters in this country. Prior to that time, the movement of mail was mostly a private endeavor. However, as the country moved in the post–Civil War era toward achieving its “manifest destiny,” it became extremely important to establish a system of communications capable of connecting all the points of the growing domestic economy. I am confident that the lawmakers who enacted the 1871 postal monopoly law clearly understood the meaning of the word “letter,” a term whose common usage had long been established.
Well, Smith might look at the Annals of the Congress of the United States, 2nd Congress 1791, at page 230, 316, and at page 356. A private business trying to gainsay Ben Franklin, George Washington, and others who felt the mail service should only be run by the Federal government.
One understands why Federal Express would want a large competitor put out of business. A person interested in whether we should privatize the post office might do this: compare how much Fed Ex and the USPS charge for one day mail delivery.