by Gary Alexander
February 4, 2025
As we continue to celebrate the 250th anniversary of America’s birth, I want to fulfill a promise I made in my year-end book reviews. My final book was “The Nvidia Way,” but it was just published (on December 10th), so I was not through reading it, promising at the end of the article “to write a column on the virtues of a benign monopoly in January.” Well, it is early February now, but let’s start with two big shipping monopolies that helped define and create America’s independence and freedom 250 and 200 years ago.
First, a British monopoly helped launch the American Revolution 250+ years ago: The British East India Company was granted a monopoly by the Crown for all tea sold in the American colonies from 1698 until the Boston Tea Party in late 1773. The company was granted this monopoly by the British government to help the company grow out of debt and eliminate foreign competition. Only action by rebellious colonists in the chilly Boston harbor on December 16, 1773, brought an end to that 75-year state-run monopoly.
Then, 200 years ago, a state-run shipping monopoly ended in an “emancipation proclamation for American commerce.” This story emerges from a book, “The Myth of the Robber Barons” by Burton W. Folson, Jr. First published in 1987 as “Entrepreneurs vs. the State,” Folsom starts with a 21-year-old Cornelius Vanderbilt in 1815 – long before the Robber Baron era. (I prefer the older book title, since the book focuses on little Davids fighting state-run Goliaths: Hungry entrepreneurs vs. state-funded oligarchs.
In the opening chapter, young Vanderbilt began shipping passengers at low cost, but he had to fight the New York state-run shipping monopoly. At the time, Vanderbilt worked for Thomas Gibbons, under whose flag Vanderbilt’s Bellona ferried passengers from New Jersey to Manhattan in violation of the monopoly’s charter. Vanderbilt’s fare was just $1 – below cost and well below the monopoly price of $4, but he made up those losses by selling food and drink in the steamboat’s bar. Vanderbilt evaded capture by police for 60 straight days but was caught and thereafter had to sue for the right to engage in free trade.
On one side of the courtroom was Aaron Ogden, a New Jersey steamboat operator who had purchased a license from the Fulton monopoly. He brought suit against Thomas Gibbons for violating his monopoly (Daniel Webster was an attorney for Gibbons and Vanderbilt). In the landmark Gibbons vs. Ogden Supreme Court decision of March 1824, the Fulton-Livingston monopoly was declared illegal as it violated the U.S. Constitution’s commerce clause – that only the U.S. government could regulate interstate commerce. The collapse of the state-run monopoly resulted in: 1) an immediate drop in prices for both freight and passengers; 2) new competitors in the business; and 3) new technology – such as better boilers and the use of anthracite coal (from nearby Pennsylvania) rather than wood for fuel.
A century after Gibbons v. Ogden, legal historian Charles Warren called that decision “the emancipation proclamation of American commerce.” But shysters did not stop seeking government-added monopolies.
The next chapter in Folson’s book covers Canadian-born railroad tycoon James J. Hill, who built the Great Northern Railroad without a dime of federal aid. In the late 1860s, the federal government tried to lay a quick, fast and dirty Transcontinental Railroad by funding a subsidized race between the Union Pacific and Central Pacific lines with dollars paid per mile of rail laid. You always get more of what you subsidize, so the railroads chose easy routes, sometimes laying them in useless circles with cheap, light rail to maximize income, under orders to “substitute wooden culvert for masonry wherever you can.”
One estimate was that these lines spent “three times what should have.” They also ran right through major Cheyenne and Sioux lands, inviting Indian attacks that killed hundreds, while creating new enemies, and despite being given 44 million acres of free land and $61 million in cash loans, Union Pacific went bankrupt.
By contrast, James J. Hill, operating privately out of St. Paul, Minnesota, slowly built a far superior transcontinental railroad from St. Paul to Seattle with no federal aid, funded by short-term routes hauling crops. It became the best built, least corrupt, most popular line and the only transcontinental line never to go bankrupt. He found the lowest mountain passes with gradual grades. It took longer to complete, but he found the shortest route with the least curvature to attract settlement and trade by cutting costs for passengers and freight. He also skirted Native Indian land along the route, or paid them for access rights.
A Third Example – the Postal Monopoly
If I may add a third example – not in Folson’s book – this provides the clearest example of the contrast between a federal monopoly and private entrepreneurs. Shortly thereafter America won its freedom from Britain, the new American government gave birth to its own business monopoly in the form of a cabinet post called The Postmaster General. Why delivering letters became a protected monopoly along the line of Defense, Treasury and State, our Founders never explained well, but the postal monopoly endured.
So far, we’ve seen that ships and railroads could compete to carry people and cargo, but carrying pieces of paper with a stamp became a state monopoly. When trusts were busted in the early 1900s, nobody noticed a teen-aged bicyclist in Seattle 1907 busting the federal postal trust, but Jim Casey, 19, borrowed $100 to fund a bank of telephones and rent an office below a saloon in Pioneer Square (near Skid Road). Due to its location, Casey soon discovered that people wanted more beer and food delivered than messages, so Casey first called his service “Rushing the Growler.” They also delivered messages, food and liquor.
At first, they called themselves the American Messenger Service, later United Parcel Service, or UPS. In an early corporate decision, due to all the dirt on Skid Road, UPS painted all their trucks brown, to avoid collecting dirt, since they didn’t want to wash the trucks or uniforms often. That’s why UPS is still brown.
Now we see the difference between the federal monopoly – the U.S. Postal Service, always losing money and often late – and UPS delivering parcels since 1907. Then came overnight delivery out of Memphis, invented by Fred Smith of “Federal Express” fame, competing directly with USPS’s First-Class Mail. Then came faxes, Internet, email, texting, and all the other ways to put the federal behemoth in the back seat.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The ground-breaking book on anti-trust is Robert Bork’s “The Antitrust Paradox: A Policy at War with Itself” (1978), which changed how justices looked at companies since the 1980s. It was cited in several court rulings, including the Supreme Court. Since it first appeared, courts have taken into account customer benefits over the impact of big corporate giants on smaller, less efficient, less competitive firms.
This Brave New Borkian World has given gave birth to several mega-corporations, or more accurately, new types of mega-corporations, more knowledge-oriented than industrial, based on Bork’s historical understanding that not all small businesses must survive by right of existence, since capitalism implies “creative destruction” (à la Joseph Schumpeter) and “survival of the fittest” (Darwin’s maxim expanded).
In this accounting, even the richest “Robber Baron,” John D. Rockefeller, “saved the whales” and lit millions of homes far more cheaply with kerosene, while eventually proving that trust-busting didn’t work when the sum of Standard Oil’s offshoot parts became worth more than his behemoth mother ship.
To bring this story to the present book and today’s headlines, “The Nvidia Way” (2024) is a retelling of the same old story. As a young immigrant, Jensen Huang worked long hours in grueling jobs, including as a busboy at a famous dining chain, where he launched Nvidia with two partners in the mid-1990s.
Even now, 31 years after co-founding Nvidia, CEO Jensen Huang refuses to work in a private office. He stakes out a spot in a couple of bullpens to be close to his smartest team members. One of those rooms is called the Mind Meld, based on Star Trek lore, when Vulcans telepathically combine their thoughts.
Humble beginnings make a difference, if CEOs merely stay hungry by recalling how they came up. According to author Tae Kim, the company treats people well, “as human beings rather than fungible engineers,” in contrast to some other companies we could name. Many Nvidians, the book reports, stay for decades, and not just for the money. They are already rich. People don’t generally work 80 or more hours a week just for money. You have to be motivated by a mission to work those kinds of hours.
Last week, Nvidia was put to the test, once again. It has been put to many such tests since its founding, but the latest attack by DeepSeek only proves that Nvidia is not a protected monopoly. Other companies have tried to penetrate its secret sauce without success, and now comes a cheaper, perhaps inferior, and likely state-sponsored threat, and… we’ll see who wins. But this is not a monopoly that restrains trade.
The principle of legal private monopolies was expressed by super-investor Warren Buffett as “creating a moat” about your product or service, doing something important for consumers far better than anyone else can do it – for a long foreseeable time into the future. In his 1995 corporate report, Buffett summarized this process: “We’re trying to find a business with a wide and long-lasting moat around it.” This moat “protects a terrific economic castle with an honest lord in charge of the castle.” And that’s what separates an honest, honorable, creative hard-working monopoly of skills from a state-sponsored protection racket.
Navellier & Associates owns Nvidia Corp (NVDA), in managed accounts. We do not own FedEx Corp (FDX), or United Parcel Services (UPS). Gary Alexander owns Nvidia Corp (NVDA), in a personal account. He does not own FedEx Corp (FDX), or United Parcel Services (UPS).
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
A Deeper Dive into DeepSeek and Nvidia
Income Mail by Bryan Perry
A Major Campaign Promise Kept – Now What?
Growth Mail by Gary Alexander
Is a Monopoly Always Bad? How Can We Tell?
Global Mail by Ivan Martchev
The Cycle of Tariff Recriminations Has Started
Sector Spotlight by Jason Bodner
What Should Investors Do with Nvidia Now?
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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