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At 41 cents per stamp, paying a bill, sending a birthday card or keeping in touch with a pen pal can be pretty expensive. Postal fees continue to rise, but deliveries aren’t faster, mail isn’t safer and the lines at the Post Office don’t get any shorter. All this leads one to ask, "How can such an inefficient company stay in business?"
The answer, of course, is by force of law: Competing with the United States Postal Service in the delivery of first-class mail is illegal. The Post Office has held its statutory mail monopoly since our country’s infancy, when government officials contended that private companies could not handle the awesome responsibility of delivering the mail. But the truth is that private mail services have existed all along and have generally lowered prices, introduced innovations and intrepidly challenged the government’s statutory control of the mail delivery market.
Throughout the 19th century, the government Post Office ran large deficits, usually due to political influences and operational inefficiencies. In fact, many government postal routes failed to generate revenues greater than 1 percent of their costs. Private companies, on the other hand, generally were self-sustaining and provided superior services at lower costs. They lost business to the Post Office when the government employed the law to force them out of the market. Regardless, private competition repeatedly challenged the Post Office, even in its early days.
One of the first private companies to directly defy the Post Office was Wells Fargo & Co., created by Henry Wells, William George Fargo and Daniel Dunning. Wells got the idea for the company after a hotel operator offered to pay a handsome price for the speedy delivery of oysters to his chef. Wells soon realized that many people were frustrated with the sluggish and unreliable Post Office, so he sought to provide superior services. Not long after its formation, Wells Fargo gained a reputation for fast deliveries and prices that beat those of the Post Office.
Because the Post Office began to lose customers to Wells Fargo, especially in New York, the federal government began to arrest its delivery agents within the state. But Wells Fargo’s services were so popular that the plan backfired. Upon hearing of the arrests, people rushed to pay bail for the delivery agents. Congress eventually was forced to lower postal rates so that the Post Office could remain competitive. In the end, even a statutory monopoly and the backing of the federal government could not stop Wells Fargo’s success.
Years later, the Post Office even offered Wells Fargo a government contract, although the company had never sought it. In 1868, after it was unable to keep up with western mail deliveries, a desperate Post Office turned to Wells Fargo to carry mail out West. Thus the private company that the federal government had tried so hard to suppress ended up coming to the Post Office’s rescue.
Wells Fargo is only one of many private competitors that challenged the postal monopoly by providing quality services at low costs. The Post Office still clings to its government-enforced monopoly on first-class mail because it knows that if it had to compete fairly in the market, we’d all be buying our stamps from its competitors.
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Christina M. Kohn holds a B.A. in economics and history from Hillsdale College and was a summer 2006 intern at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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