Third—and within the limited area of monopoly—it was contemplated that public regulation under the police power would mitigate the potential aggressions of monopoly—specifically, excessive charges, discrimination, refusal to serve, and deterioration of service, thus attaining substantially the same results as competition provided in other areas. In brief, public regulation would be a substitute for competition in those limited sectors of the economy where, for technical reasons, competition was impossible or undesirable. The significant feature of this conception was the retention of the competitive ideal of service at cost (including a fair return on the capital employed) as the goal of public policy. Society might, for practical reasons, institute monopoly in special situations, but it would invoke its sovereign police power to compel such monopolies to conform to the competitive model with respect to end results. Thus, on this reckoning, it was possible to have monopoly without suffering its normal consequences; to abandon competition but still enjoy its benefits; to force monopoly to behave competitively. All this, it was then believed, could be accomplished by rigorous application of the police power in the public interest.
Subsequent events, however, revealed basic errors in this assumption. The men of that period seriously misjudged the efficacy of the police power. They failed to comprehend that negative, restrictive control of individual behavior can never be a substitute for positive decisionmaking in the productive process. They underestimated the difficulties and frustrations incident to application of the police power within our constitutional, administrative, and political system. More particularly, however, they completely misapprehended the nature of legalized private monopoly—its intransigence, its resourcefulness, its ruthlessness, its economic and political power, its capacity to evade or subvert public regulation. They failed to foresee that increasing social dependence on the services of such monopolies would progressively strengthen their strategic position vis-à-vis the community, further diminish the limited effectiveness of public regulation, and eventually create a situation where the sovereign powers of government would be invoked to protect and subsidize rather than to regulate them. This process of institutional perversion was not, and perhaps could not have been, anticipated. The knowledge and experience available in these formative years did not enable men to foresee that a system of public regulation designed as a substitute for competition would ultimately become a pillar of monopoly. But such appears to
be the fate of institutions when men rely on private monopoly to serve the public interest.
Experience indicates that none of the original efforts to preserve the main essentials of competition, while tolerating a limited degree of monopoly, have proved successful. Once the virus of legalized private monopoly was introduced into the body politic, it spread rapidly. In one direction it encroached on the sovereign powers of government, alienating portions of them, frustrating their application, and pre-empting them for private gain. The twofold effect was to strengthen monopoly and to debilitate the regulating power of government. In another direction it encroached on the reserved areas of competition from which it was originally contemplated that monopoly would be excluded. This movement expanded the scope and increased the power of monopoly while restricting and weakening residual competitive forces. At the center, where public regulation was to serve as a substitute for competition, the police power—inadequate at best—broke down almost completely before the growing power and complexity of private monopoly. Thus public regulation not only failed to provide a substitute for competition; it actually became the servant of private rather than public interest.
First, as already indicated, alienation of the public domain and grants of privilege laid the foundations for powerful private monopolies and at the same time placed them pretty effectively beyond reach of the police power. Thus monopoly became stronger, more extensive, more complex, and more firmly entrenched, while public regulation became relatively weaker and less competent to control such aggregations of economic power. This was a development not contemplated in the original design, for it was then assumed that privilege would be used sparingly and with adequate safeguards.