This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
In five of the nine changes the paradox of value appeared; three times (1904, 1908, and 1911) when production increased, and two times (1909 and 1911) when production declined; and in still another year (1905), this nearly occurred, for a crop smaller by 20 per cent had a total value only two-thirds of a per cent less than the year before.
§ 5. Monopoly not merely scarcity. Monopoly should not be used as synonymous with scarcity. Scarcity is the essential condition of all value. The simplest things - bricks, sand, the commonest unskilled labor - would have no value were there not a degree of scarcity. " Monopoly," whatever else it means, always conveys the idea of some exceptional kind of scarcity due in part to some source or cause not ordinarily present. Many economic writers, for example, have called land-ownership monopoly, saying that land being the work of nature cannot be increased by men, and therefore must always be scarce. Even if it were true that in the economic sense land could not be produced by man, there still would be confusion here between a general class of goods and a special thing. The fact that a particular field cannot be duplicated does not make a monopoly of land as a whole. Nothing can be duplicated exactly, but units very like can be bought of others that will do just as well. It leads to absurdity to use the word monopoly with reference to land-ownership indiscriminately. Neither the humble owner of forty acres of land worth four hundred dollars, nor the owner of a village lot worth a hundred dollars, has any monopoly power. Neither mere scarcity nor the limitation of natural stores should be called monopoly when ownership of like goods is scattered and combination between owners does not exist.
§ 6. Monopoly is not merely superior economic power. Neither does the ability of superior material agents and of skilled workers to secure higher returns than do poor ones constitute monopoly. The free competition assumed in abstract discussions of value does not mean equal capacity or efficiency, but the legal freedom and the personal willingness to move a productive agent into the highest industrial place it is capable of holding. The rocky field does not compete with the fertile one in the sense that it can yield the same uses. The field fit only for potatoes does not compete with those rare and favored localities that can raise the best wines. The gardener earning two dollars a day does not compete with the skilled physician with an income of twenty thousand a year, for he has not the economic capacity to do so; but he is free to compete (as is the owner of the rocky field) unless law, caste, class legislation, social prejudice, or some other objective factor forbids. Anything, however, that prevents the labor or wealth of buyers or sellers from applications for which they are fitted, defeats free competition. To use the term monopoly of any and every limitation of economic ability is to extend it to every case of value. To use it of the high wages of skilled workmen, where no union to suppress competition exists among them, is to make it a colorless synonym of scarcity. It should be confined to a narrower and more exclusive use. Some special kinds of limitation should be connected with the idea of monopoly. The limitation connected with monopoly is not that of economic capacity but that of ownership and control.
§ 7. Partial competition coexisting with monopoly. The limitation of competition in the case of monopoly is usually in some part merely, or on one side of the market. It is true that a condition of double or two-sided monopoly may exist; indeed, this is always the case in isolated trade, but the typical and important problems of monopoly, in advanced industrial conditions, are those where competition is removed from the traders on one side while it continues to press with full force upon the traders on the other side.1
1 See above, sec. 3, on the conflicting interests of competition.
Monopoly-price, therefore, cannot mean one which is determined without the operation of competitive motives, but one which is determined through their more or less partial and one-sided operation.2 When monopoly exists the market is not a full or complete one, but competition may still be very active in many respects.
§ 8. Absolute and relative monopoly. An absolute monopoly might be said to exist whenever the entire group of traders having control of some kind of goods, on one side of the market, is united to act as one person. This situation rarely occurs and even when occurring is modified by the power of substitution of goods somewhat similar. Monopoly, therefore, is nearly always relative rather than absolute. Monopoly and competition both may better be thought of as qualities more or less marking the conduct of traders on either side of a market than as absolute concrete situations. The element of competition is always present in large measure either on both sides of the market or on one side. Monopoly, however, is more likely to occur within the smaller group of traders, while competition is more likely to continue within the larger group, and in varying degrees from the least to the greatest.
Wherever any agreement exists among bidders it makes their action lose, in so far, its competitive, and take on a monopolistic, character, tho this may be very slight and not socially harmful. Likewise the element of monopoly is present among small traders whenever there is but one trader on one side (the buying or the selling side) and he makes a more or less separate bargain, at different prices, with each of the traders on the other side of the trade, forcing each toward the upper limit of valuation.
§ 9. Motives and germs of monopoly. As competition is always forcing buyers to bid up, and sellers to bid down against the general interest of their groups, there is an ever-besetting motive for monopoly. If two or more of the traders on the same side of the market can get together and limit their mutual competition, they often may gain, tho at the corresponding loss of the other parties. Evidences of this practice appear throughout all the history of commerce.
2 This caution is necessary as the student will find frequently the assumption that a monopoly-price is not influenced by competition.
The germs of monopoly are in any device whatever, that is used to keep any trader from competitively bidding in accordance with his individual interest as he sees it. A group of the most eager bidders at an auction sale may combine and pay the least eager buyers each something to keep them from bidding, and then buy up the whole supply for a trifle. Or all would-be buyers may secretly agree to let one or two do all the bidding and to divide the results. If, on the other hand, the auctioneer has confederates who pretend to buy the goods if the price is not as high as the auctioneer expects, a fictitious market price results, and buyers lose the chance that brings them to the auction, that of "picking up a bargain." An auctioneer often conceals the fact that there is more than one of an article, and having sold it off, brings out a second or a third one of the same kind, thus keeping the buyers in ignorance of the supply and getting somewhere near the estimate of the most eager buyer in each case.3