The medieval notion of justum pretium, the just price, may have been often misapplied, and it was often criticized and ridiculed by economists in the period of idealized competition (from Adam Smith to John Stuart Mill). But at the heart of the notion was the judgment that general uniform prices fixed in the open market are the proper norms for prices when one of the traders is caught at an exceptional disad vantage. The modern world has been compelled to reexamine the conception of the just price.
§ 3. Evil economic effects of 'monopolistic price. The oretical analysis confirms this view. Any exercise of monopo listic power over price keeps some, the weaker bidders, from getting any of the desired goods, or limits them to their most urgently desired units. What may be called the "theoret ically correct with two-sided competition is the one that permits the maximum number of trades with a margin of gain to each trader. In narrowing the possibility of sub stitution of goods by trade, the sum of values of goods for most men is diminished. Thus all citizens who are the vic tims of an artificially created scarcity look upon monopoly as "bad," just as they do upon the evils of nature—drought, locusts, fires, and pestilence. A monopoly has an indirect and more distant bad effect upon the spirit of all those trading with it. If they are producers selling at prices depressed by mo nopoly, their money incomes are reduced; if they are con sumers buying at monopoly prices, their real incomes are re duced ; in either ease, their psychic incomes, the motives of all industry, are diminished and their industrial energies are relaxed.
§ 4. Common law on restraint of trade. The first re corded case in English law wherein the courts sought to pre vent the limiting of competition by agreement runs back to the year 1415, in the reign of Henry V. This was a very $ See Vol. 1, pp. 66, 67.
simple case of a contract in restraint of trade, whereby a dyer agreed not to practise his craft within the town for half a year. The court declared the contract illegal (and hence unenforceable in a court), and administered a severe reproof to the craftsman who made it. Thus was set forth the doc trine of the moral and legal obligation of each economic agent to compete fully, freely, and without restraint, even re straint imposed by a contract voluntarily entered into for his own advantage.
Not until the eighteenth century was this rigid doctrine somewhat relaxed so as to permit the sale of the "good-will" of a business under limited conditions, and some "reason able" contracts in restraint of trade. Later the emphasis was somewhat further shifted, by judicial interpretations, from the notion of free competition to that of "fair" com petition, so as to permit contracts involving moderate restraint of trade, if the essential element of competition was retained. Thus it was said that a piano manufacturer might by con tract grant an exclusive agency to a dealer in a certain ter ritory, there being many other competing makes of pianos, and such a contract "does not operate to suppress competi tion nor to regulate the production or sale of any commod ity." But with such moderate limitations the courts in cases under the common law have steadily disapproved con tracts in restraint of trade that would appear to be to the disadvantage of third parties, whether producers or con sumers.
§ 5. Growing disapproval of combination. The attitude of the courts became in one respect stricter. Some earlier cases involved the doctrine that what is lawful for an indi vidual to do alone is lawful if done in combination with oth ers. Indeed, a comparatively recent case 5 declared, regard ing a group of dealers agreeing not to deal with another, that 4 77 Miss., 476. Cited by Bruce Wyman, "Control of the Market," p. 137.
"desire to free themselves from competition was a sufficient excuse" for such action. But the general trend has been to the doctrine that a combination of men "has hurtful powers and influences not possessed by the individual." Hence threats of associations of traders (retailers or wholesalers) not to deal with another if he continued to deal with some third party have been declared acts in restraint of trade.' Yet in the case cited the court seemed to have been more con cerned with protecting "the individual against encroachment upon his rights by a greater power," "one of the most sacred duties of the courts," than with rights and interests of the general public endangered by such restraint of trade.