All Commentary
Thursday, September 1, 1960

Good and Bad Monopoly

The two kinds of monopoly have to do with getting on top by productive and creative talent or getting on top by holding others down.

Monopoly may be good or it may be bad, in the sense that human behavior may be good or bad—ac­cording to whatever ethical stand­ard we use to measure moral ac­tion.

The term monopoly, however, has taken on bad connotations to the point where goodness is rarely, if ever, associated with it. As if behavior were always thought of as misbehavior!

The one-sided evil ascribed to monopoly is so pronounced in most people’s thinking that one is tempted to coin a new term to con­vey the idea of monopoly in its good sense. But remedying mis­taken connotations by inventing new words is, more often than not, a hopeless means of improving communication between people. It may be simpler to correct the mis­taken connotations.

According to dictionaries, the term monopoly means “exclusive control of a commodity or service in a given market.” Monopoly and exclusive market position are in­terchangeable terms, so deeply im­bedded one in the other that they possess semantic inseparability. Thus, there is little choice but to make out as best we can with the word monopoly.

There are two ways to attain an exclusive position in the market, that is to say, there are two ways to achieve monopoly. One way is not only harmless—indeed, it is beneficial; the other is bad. The beneficial way is to become su­perior to everyone else in provid­ing some good or service. The bad way is to use coercive force to keep others from competing effec­tively and also from challenging one’s position. Rise above others by excellence, or hold others down by coercive force!

As the late Ambrose Winston so skillfully pointed out in his The Chimera of Monopoly (see p. 39), the bad form of monopoly is vir­tually impossible, assuming free exchange. In brief, monopoly in its popular and evil sense cannot be achieved except as coercive force—private or governmental—is em­ployed on its behalf. Mr. Capone used private force to maintain an exclusive position in Chicago‘s beer market. Governmental force links itself with labor unions to keep workers from having free ac­cess to the labor market. The same force joins with producers and dis­tributors to limit access to mar­kets, as in the case of cartels and other forms of trade restriction. Exclusiveness in the market as a consequence of coercive force is the only form of monopoly most people envision. Thus, they look upon any and all exclusiveness in the market as having none but evil characteristics.

There is, however, a way of achieving a monopolistic position (exclusiveness in the market) that beneficially affects all concerned. Indeed, all progress rests upon this way: Become superior, that is, surpass others by excellence, which is to say, achieve leadership by the voluntary followership of others.

A simple example: Assume the existence of a common brain ail­ment among the population, one that no person has yet found a way to alleviate. Next, assume that you, through research and experi­ment, eventually perfect the tech­niques in surgery that can effect a cure. You will in this instance, temporarily, have an exclusive market position, a monopoly. No one will be injured by your achievement; the few on whom you can find the time to operate will be benefited. This is not only a harmless monopoly; it is a good one in the sense that it is an im­provement upon that which ex­isted previously.

Badness, nonetheless, will be as­cribed to your monopolistic posi­tion, and for a simple reason: Thousands of those suffering the ailment will seek your expert serv­ices, but only a few of them can be accommodated. Both the surgery and the preparation are slow and complicated. Fifty operations are your maximum for any one year. All but the fifty will complain about the method of allocating your services, no matter what method you choose.

For instance, you could confine the surgery to your friends, charg­ing a “friendly” fee. Or, to the poor, doing the specialized work for free. Or, to those whose lives, in your judgment, were most worth saving, charging what each could afford to pay. Or, as in so­cialized medicine, letting the bu­reaucracy issue the priorities, at an arbitrary fee to be paid out of taxes. Or, as in Russia, according to political preference.

Choose whatever method you will, only the fortunate fifty can be served by you annually. The unat­tended thousands will be unhappy with your monopoly, regardless of how your services are allocated.

Dissatisfaction on the part of those whose lives you cannot save is to be expected. What ought to interest them, however, is some method of allocating resources that will attract others to com­pete with you and thus challenge your exclusive position in the mar­ket. There are, they should recog­nize, no powerful influences in any of the above “humanitarian” methods for luring others into an emulation of your surgical excel­lence. This is another way of say­ing that these methods of allo­cating resources more or less limit the goodness of your type of monopoly to the good that you alone can perform.’ You can save fifty lives annually, no more. There is a method by which the goodness in a good monopoly can be vastly multiplied, by which its temporariness can be assured, its permanence broken. It is the method of the free market with its price mechanism: Charge a price high enough to limit the demand to, the number of operations you can supply—to bring demand and sup­ply into balance. That price, for the sake of this argument, might be $25,000 per operation. This, ad­mittedly, is but to affirm that in the initial instance only the wealthy or those willing to mort­gage their futures could afford your life-extending services.

“Horrors!” would cry those who call themselves humanitarians. “There is no thought of people at all in this scheme, only of money. What a materialistic point of view!” Yet, the same number of lives is to be saved as before, the only difference being in the method to determine whose lives.

While badness, not goodness, is often ascribed to the price mecha­nism of the free market as a means of allocating goods and services, the ascription is wholly in error, even on humanitarian grounds. For, this method, allowing for the influences that motivate men in to­day’s world, is the only realistic way of bringing the above-men­tioned surgical services to the tens of thousands who are suffering the brain ailment.

The very high price per operation is the market’s green light. It is the economic “go” sign signaling the way to green pas­tures. It powerfully attracts other surgeons to the same high achieve­ment as your own. Soon there will be many surgeons who will perform the same operation as dexterously as you. The price—in a free and open market—will be relied on to allocate the available resources, its tendency being, as with shoes, houses, autos, TVs, foods, and whatever, to fall within the range of all.

The market method of allocat­ing resources is impartial. It brings individuals together, imper­sonally, on a mutually agreeable basis.

All alternative methods are par­tisan and personally discrimina­tory. Assuming the most high-minded and charitable surgeon conceivable, he must, if he rejects the market method, personally select from among the thousands the fifty on whom his beneficence is to be bestowed. Or, if the alter­native method is governmental control, some individual in the political apparatus makes arbi­trary decisions as to who is to receive the surgery. Of necessity, under this method, there is a ceil­ing on prices and thus the scheme carries no incentives luring others into superior skills.

The kind of monopoly which par­ticularly merits opposition re­quires coercive force which, usu­ally, is provided by government. To the extent that this type of monopoly exists, to that extent is the market closed. This is the socialistic formula and presup­poses a bureaucracy composed of omniscient individuals, intellectual supermen capable of bringing all human action within their intelli­gent purview.

Good monopoly requires nothing in the way of societal or police con­trol except the formal, legal in­hibition of all fraud, violence, mis­representation, predation. Such inhibition is the function which government, in good theory, is sup­posed to perform. Creative action is unfettered. Superiorities in the market (monopolies) tend to as­sert themselves as rapidly as the abilities of the people permit. To the extent that this type of mo­nopoly exists, to that extent is the market open. This is the liber­tarian or free enterprise formula and presupposes a people not one of whom is capable of coercively directing the creative actions of others, wisely.

When everyone is free to pursue an exclusive market position by the route of superiority, as dis­tinguished from imposing in­feriority on others, such creative potentialities as exist in the people will find expression and realiza­tion. The two kinds of monopoly have to do with getting on top by productive and creative talent or getting on top by holding others down. The contention here is that the former is good monopoly; the latter is bad monopoly.

Professor Winston (1867-1959) stressed that fact throughout his long teaching career. He was Associate Professor of Economics at the University of Texas when this article, slightly condensed here, first appeared in the November 1924 issue of Atlantic Monthly.




1 This assertion assumes that man in today’s world is not, for the most part, a selfless being. Admittedly, there are those of undeniable talents who take vows of poverty and also others who turn their backs on the rewards of this world. But they are more the exception than the rule

  • Leonard E. Read (1898-1983) was the founder of FEE, and the author of 29 works, including the classic parable “I, Pencil.”