Profits the Reward of Management 1

monopoly, price, labor, capital, public, competition and employment

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For the sake of illustration a set of figures has been arbitrarily selected that will illustrate the various points of increase in sales, price expense and profits earned.

It is taken for granted that the fixed expenses cover the ordinary returns of interest and the wages of man agement. With such an understanding, the owner of the monopoly will fix the price at certainly not less than six cents—according to the table here given— for this will bring him the maximum return.

12. Devices to conceal monopoly are three important limitations that more or less af fect the monopolists in the fixing of prices. These are the power of substitution, which is a possibility, in most instances, for the consumer; competition, often latent; and legal regulation. To avoid these, and especially the last, various devices are resorted to. The wise monopolist holds down the price of the goods he controls so that competition and substitu tion may not be invited. To forestall legal regrula tion, he resorts to stock--watering, to the payment of unusually large salaries to officers, to the issuance of new stock, from time to time, to the stockholders, and to payments to the owners of patents or franthises beyond the original purpose of the agreement.

In many cases the monopolists have been driven to such devices because of the general impression that monopolies are always opposed to public interCst. Certainly, one telephone system is better than two, and one waterworks plant is more desirable than sev eral. In some ways one large organization can serve the public better than many small ones. The public has some protection in the elements of latent competi tion, the variableness of demand, the requirement of the publicity of monopoly methods, and the regulation of rates for public-service corporations.

13. Effect of monopoly on the employment of labor and capital.—On page 311 the table of prices, sales, expense per unit, variable and fixed expenses and profits of an unknown industry shows a very inter esting result of monopoly influences. Under mo nopoly control, the price would be fixed at six cents and the supply would remain at 3,500,000 units.

The public, however, might have taken 5,000,000 had it been offered at five cents, but because of the mo nopoly only 3,500,000 are available.

Here is a direct loss in accommodation, and a smaller employment of labor, capital, materials and land than would have resulted under competitive con ditions. The community finds that it must be satis fied with a smaller supply at a higher price and, further, that competition is increased in the competi tive industries on account of the limited use of pro duction factors in the monopolized industry. It must be acknowledged that this has the immediate effect of lessening purchasing power and materially modifying the employment of capital and labor in the community.

When to this instance are added many others, it will be seen that the monopoly makes its appearance as a disturbing factor in the distribution of wealth. It appears also that monopoly price, resulting in cur tailment of the product, reduces the volume.of sales in many instances like the one just cited; further more, it often results in a reduction of employment for capital, labor and land. If a monopoly condition in some fields causes sharper competition in others, there must result an extension of production and a lowering of the return to the man on the margin. This means a smaller product for his effort, a lower wage and lower interest but higher rents. Many men, under such circumstances, excluded from the particular industries for which they are fitted, would be compelled to accept unsatisfactory conditions in strange fields.

Just as the law of diminishing returns applies to land, its operation in this wider field would bring smaller results for the units of labor and capital ap plied. Hence interest and wages would be less than they would be if the monopoly were abolished and wise use were made of capital and labor under com petitive conditions. Here is the difficulty. Wise use is not likely to be made and so some justification for well-regulated and well-managed monopoly can be urged.

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