The Case for the Post Office

In the next few days we may decide the future of the Post Office. The signs are not auspicious. President Obama has agreed to a plan to cut Saturday delivery. The Post Service's management wants to close 2500 post offices immediately and up to 16,000 by 2020. Representative Darrell Issa (R-CA) has introduced a bill that could end free door-to-door delivery.

Republicans have been railing at the government post office for many years. But for most of us, it is a "wondrous American creation."

"Six days a week it delivers an average of 563 million pieces of mail -- 40 percent of the entire world's volume", observes BusinessWeek. "For the price of a 44¢ stamp (the lowest postal rate in the world), you can mail a letter anywhere within the nation's borders. The service will carry it by pack mule to the Havasupai Indian reservation at the bottom of the Grand Canyon. Mailmen on snowmobiles take it to the wilds of Alaska. If your recipient can no longer be found, the USPS will return it at no extra charge. It may be the greatest bargain on earth."

For all you Constitutionalists in the audience, the Founding Fathers considered the Post Office so important they included its creation on the short list of powers they bestowed on Congress, along with national defense, taxation, coining money, and regulating commerce.

A Public Institution With a Public Mission

From its beginning the Post Office was a public institution with a public mission.

One mission was to promote an informed citizenry. To that end, Congress allowed newspaper printers to send each other newspapers for free, facilitating the flow of information from national and international sources to rural villages. The 1792 law also provided for the mail delivery of newspapers to subscribers at the low rate of 1 cent for up to 100 miles.

In the 1830s Alexis de Tocqueville described the success of these policies, "nothing is easier than to set up a newspaper, as a small number of subscribers suffices to defray the expenses. In America there is scarcely a hamlet that has not its newspaper."

The special rate for newspapers eventually was extended to other types of materials recognized as having educational and cultural benefits: periodical pamphlets, magazines, nonprofit publications, library materials, and books.

In the 1820s the Post Office stepped in to promote the general welfare by overcoming what in modern parlance might be called a "digital divide." For a price, private firms began to provide a faster mail service to investors seeking advanced market intelligence. A ship docking in New York might bring news of a rise in cotton prices in Liverpool. Speculators dispatched messengers to southern cotton markets and made a killing purchasing cotton at normal prices in advance of the run up.

The Post Office responded by establishing its own express mail service to equalize access to market information.

Outraged private carriers prompted a government investigation into the propriety of public express mail. The investigation concluded, "the object of the Department was laudable and praiseworthy." "(T)he Government should not hesitate to adopt means, although of an expensive character, to place the community generally in possession of the same intelligence at as early a period as practicable."

Early on, the Founding Fathers realized the Post Office would find it difficult if not impossible to achieve its public objectives if private businesses could siphon off the most profitable routes, leaving only money losing routes and services to the Post Office. Thus, the 1792 law also prohibited private postal service "whereby the revenue of the general post-office may be injured." Private firms found abundant loopholes. In 1843 Senator William D. Merrick expressed his exasperation at "these private expresses, which had been placed on all the most profitable routes.... (which deprived) the department of the greatest portion of its revenues and thereby disabled it from reducing the rates of postage...and from extending greater facilities to the more remote and sparsely populated sections of the Union."

In 1845, Congress closed the loopholes, enabling the Post Office to dramatically lower the price of postage and initiate free door-to-door delivery in cities.

In the 1890s the Post Office extended free door-to-door delivery to the two-thirds of America who lived in rural areas. Postmaster Generals like John Wanamaker, the founder of the Philadelphia department store, knew this would lose money in the short term but the nationwide infrastructure would become the foundation for new services. One of these would be package delivery. A full fledged parcel post would develop profitable routes that compensated for the unprofitable ones found in any system promising universal service.

Wanamaker got his wish when the handful of private companies that dominated package delivery began treating their customers badly. The companies refused to inform their customers about free delivery in areas beyond rail depots, sent shipments by circuitous routes to inflate costs, discriminated among customers, double charged and overcharged.

The post office stepped in. Parcel post began in 1912. Critics predicted the post office would be unable to compete. "(T)he Postal Department as now organized and operated would be utterly unable to compete with express companies upon purely a business basis," one writer insisted. He was wrong. Tests comparing the private and public services found the government service generally faster. Within a year, express companies stopped competing with parcel post in many small towns.

Professor Richard B. Kielbowicz of the University of Washington describes how the financial panics of the late 1800s and early 1900s and the closure of hundreds of banks led the Post Office to promote the general welfare another way, by undertaking "an experiment in a new field of public benefits": postal savings banks.

The banks fought back. They contended postal banks were unnecessary and would be "mismanaged, inefficient and costly and (would) serve the public less well than privately managed businesses." The American Bankers Association spent $1 million to defeat the bill. It lost but did get the bill written in a way that severely restricted the ability of the post office to compete. Congress set the interest rate payable on deposits at 2 percent, half what private banks were offering, and set a maximum account balance at $500. Nevertheless, the postal savings system was by all accounts a success. At its peak in 1947 it had over 4 million accounts and deposits exceeding $3.3 billion.

In 1966, Congress voted to discontinue postal banks. With the advent of deposit insurance many argued, "the postal savings system had simply 'outlived its usefulness.'" Perhaps. But twenty years later, hundreds of the nation's newly deregulated private savings and loans collapsed, resulting in a $200 billion taxpayer bailout.