The Problem of Industrial Monopoly 1

THE PROBLEM OF INDUSTRIAL MONOPOLY 1. Kinds of monopoly. * 2. Political sources of monopoly. § 3. Natural and capitalistic monopolies. * 4. Monopoly and corporate organization. § 5. Rise of the corporation concept. f 6. Advantages of corporate organization. § 7. Growth of large industry in the nine teenth century. I 8. Trusts and combinations. I 9. Methods of form ing combinations. ˘ 10. Growth of combinations after 1880. I 11. The great period of trust formation. § 12. Height of the movement toward combinations. § 13. Motive to avoid competition. Mo tive to effect economies. fl 15. Profits from monopoly and gains of promoters. I 16. Monopoly's power to raise prices.

§ 1. Binds of monopoly.

The problem of monopoly is probably as old as markets. From the first coming together of groups of men to trade, there were doubtless efforts made by some individuals and groups of traders to manipulate condi tions so as to get higher prices than they could get in a free and open There are traces of the practices in ancient times, and the history of the Middle Ages is full of evidences both of monopolistic practices and of the efforts to prevent or control them. Monopoly may be defined as such a degree of control over the supply of goods in a given market that a net gain will result if a portion is withheld.

Monopolies may, for special purposes, be classified as selling or buying, producing or trading, lasting or temporary, 1 See Vol. I, ch. 8, on competition and monopoly, and ch. 31 on mo nopoly prices and large production. An understanding of the defini tions and of the general principles distinguishing competition and mo nopoly is necessary to a profitable discussion of the practical problem of monopoly.

505 general or local, monopolies? The term monopoly applied by its etymology' only to selling, but by usage also to buying. Under conditions of barter the selling and the buying monop olies would be the same things in two aspects. A selling monopoly is by far the more common, but a buying monopoly may be connected with it. A large oil-refining corporation that sells most of the product may by various methods succeed in driving out the competitors who would buy the crude oil. It thus becomes practically the only outlet for the oil product, and the owners of the land thus must share their ownership with the buying monopoly by accepting, within certain limits, the price it fixes. The Hudson's Bay Com pany, dealing in furs, had virtually this sort of power in North America. Many instances can be found; yet, relatively to the selling monopolies, those of the buying kind are rare.

A producing monopoly is one controlling the manufacture or the source of supply of an article; a trading monopoly is one controlling the avenues of commerce between the source and the consumers.

Monopolies are lasting or temporary, according to the dura tion of control. By far the larger number are of the tem porary sort, because high prices strongly stimulate efforts to develop other sources of supply. Yet the average profits of a monopoly may be large throughout a succession of peri ods of high and low prices.

Monopolies are general or local, according to the extent of territory where their power is felt. At its maximum, where transportation and other costs most effectually shut out com petition, monopoly power shades off to zero on the border line of competitive territory. The frequent use of the ad jectives partial, limited, and virtual are implied but usually superfluous recognitions of the relative character of monopoly.

2 For definitions and discussions of monopoly as economic power and as an enterprise in which power is exercised, the reader should carefully consult the various references in the index of Vol. I.

• See Vol.

I, p. 76.

§ 2. Political sources of monopoly. Monopoly gets its power from various sources. A political monopoly derives its power of control from a special grant from the govern ment, forbidding others to engage in that business. The typ ical political monopoly is that conferred by a crown patent bestowing the exclusive right to carry on a certain business. A second kind is that conferred by a patent for invention, or a copyright on books, the object of which is to stimulate in vention, research, and !writing by giving the full control and protection of the government to the inventor and the writer or their assignees. In this case the privilege is socially earned by the monopolist; it is not obtained for nothing. Moreover, the patent, being limited in time, expires and be comes a social possession. A third kind is a governmental monopoly for purposes of revenue. In France and Japan the governments control the tobacco trade, and the high price charged for tobacco makes this monopoly yield large revenues. A fourth kind is that derived from franchises for public serv ice corporations, such as those supplying electricity, gas, and water. These franchises are granted to private capitalists to induce them to invest capital in enterprises that are helpful to the community.