3. The Limits of Monopoly Formation

The possibility of monopolizing the market varies radically with different goods. Even the producer who is protected from competition need not necessarily be in a position to sell at monopoly prices and obtain monopoly profits. If the quantity sold falls so steeply with the rise of prices that the extra sum obtained does not cover the deficiency in the number sold, then the monopolist is forced to content himself with the price which would have emerged under competitive selling.1

Apart from the enjoyment of artificial support — the grant of special legal privileges, for example — we shall find that a monopoly can, as a rule, maintain itself only by the exclusive power to dispose of certain natural factors of production. Similar power over reproduceable means of production does not as a rule allow permanent monopolization. New enterprises may always spring up. As already pointed out, the progressive division of labour tends towards a condition in which, at the highest specialization of production, everyone will be the sole producer of one or several articles. But this would by no means necessarily involve a monopolized market for all these articles. The attempts of manufacturers to extract monopoly prices would, apart from other circumstances, be checked by the appearance of new competitors.

Experience of cartels and trusts during the last generation completely confirms this. All enduring monopolistic organizations are built up on the power of the monopoly to dispose of natural resources or of particular land sites. A man who tried to become a monopolist without the control of such resources — and without special legal aids such as tariffs, patents, etc. — had to resort to all sorts of tricks and artifices to secure even a temporary success. The complaints raised against cartels and trusts and investigated by the commissions of inquiry whose published records are so voluminous, deal almost exclusively with these tricks and practices, which aim at creating monopolies artificially where the conditions for them do not exist. Most cartels and trusts would never have been set up had not the governments created the necessary conditions by protectionist measures. Manufacturing and commercial monopolies owe their origin not to a tendency immanent in capitalist economy but to governmental interventionist policy directed against free trade and laisserfaire.

Without the special power to dispose of natural resources, or of advantageously situated land, monopolies could arise only where the capital required to erect a competing enterprise was not able to count on an adequate return. A railway company can achieve a monopoly where it would not pay to build a competing line, the traffic being too small for two lines to be profitable. The same may be true in other cases. But while this shows that a few monopolies of this kind are possible it does not reveal a general tendency to their formation.

The effect of such monopolies, e.g. the railway company or the electric power plant, is that the monopolist may be able, according to the circumstances of the case, to absorb a greater or smaller quantity of the ground rents of adjoining properties. The result of this may be a change in the distribution of income and property which is felt to be disagreeable — at least, by those directly affected.

• 1According to Wieser (ibid.) this is ‘perhaps even the rule’.