Catholic Encyclopedia (1913)/Moral Aspects of Monopoly

According to its etymology, monopoly (monopolia) signifies exclusive sale, or exclusive privilege of selling. Present usage, however, extends the term to any degree of unified control over a commodity sufficient to enable the person or corporation in control to limit supply and fix price. The proportion of the supply of an article that must be controlled in order to attain these ends, depends upon many factors, and differs considerably in different industries. In the majority of monopolized businesses, it is somewhere between 70 and 90 per cent, although there are cases in which the unified control of a little more than one half the supply of the commodity seems to suffice. In most of the cases in which the monopoly controls less than three-fourths of a business, the independent dealers seem to have the power to overthrow the monopoly but prefer to take advantage of the higher prices and steadier market conditions established by the dominant concern. They are, consequently, passive factors in the monopolized condition of the trade. No matter how great the degree of control which the monopoly enjoys, its power over supply and prices is not absolute. Many economic and prudential considerations will restrain a monopoly from exercising this power to the extent that it might desire — for example, the fear of potential competition, the discovery of a substitute for the monopolized article, or the possibility that people may get on without either the article or a substitute. But in all cases monopoly implies the ability deliberately to regulate supply and prices beforehand, and to fix both at some other point than that which would have been reached by the natural action of the market under normal competition. However inexpedient a monopoly may be, it is not in itself immoral. Its moral character depends entirely upon its actions and its effects. More specifically, its morality is determined by the prices that it establishes, and the methods that it employs toward actual or potential competitors.

I. MONOPOLISTIC PRICES

According to the older moral theologians, monopoly prices were unjust when they were higher than the prices that would have prevailed under competition (cf. Lugo, "De Justitia et de Jure", disp. xxvi, n. 72). While this rule was substantially correct for the Middle Ages, when the competitive, or rather the customary, price was generally fair to both producers and consumers, it is far from acceptable to-day, when the competitive price is often too low to provide a just return to the agents of production. For competitive prices, as well as for monopoly prices, the objective rule of justice is that a thing should be sold at a price sufficiently high to remunerate fairly all who have contributed to the production of the thing; the subjective rule of justice is the social estimate, the price approved by competent and fair-minded men (cf. Tanquerey, "De Justitia", 776). If the monopoly price does not exceed these limits, it is not unjustly high, even though it be higher than the price that had obtained or would have obtained under the stress of competition. Since the different classes that help to produce a socially useful commodity have a right to a fair return for their services, and since this return can come only from the price at which the commodity is sold, the latter is unjustly low unless it is sufficient for this purpose. There is no hidden force in competition by which an unjust price can be made just. On the other hand, there is no secret virtue in monopoly to justify a selling price that is more than sufficient to render fair returns to the different agents of production. These propositions are accepted by the overwhelming majority of persons, whether experts or not: the practical, and the only serious difficulty is to determine precisely what is a fair return to each of the different agents.

Putting the matter as briefly and as summarily as possible, we may say that a just remuneration to the agents of production comprises: (1) a living wage for all labourers, and something more than this for those workers who possess exceptional ability or skill, who put forth unusual efforts, who perform disagreeable tasks, or who turn out exceptionally large products; (2) fair profits for the business man, on account of his activities as director of industry; (3) a fair rate of interest on the actual capital invested in the business. Fair recompense for the captain of industry in a monopoly will generally mean the amount that he could obtain in return for the same services in a competitive business. Although competition is not of itself a determinant of fair wages in the case of ordinary labour, inasmuch as it often forces remuneration below the level of decent living, it is generally fair to the director of industry, inasmuch as it enables him not merely to obtain a decent livelihood, but to maintain himself in accordance with that higher standard of living to which he has a reasonable claim. And it yields even more than this to those business men whose ability is exceptional. A fair rate of interest on monopoly capital will be the rate that prevails in competitive businesses that are subject to a like amount of risk. The capitalist or interest receiver as such, does not work, but is free to earn his livelihood by his labour from other sources. Thus, since interest is not his sole means of livelihood, the just rate of interest is not determined by, nor does it bear any definite relation to, the content of a decent livelihood in the individual case. Consequently, competition may be the proper rule of justice for the interest receiver, as well as for the director of industry, although it is not always a just rule for the ordinary wage-earner.

What are the grounds for the assertion that the investor in a monopoly has no right to more than the competitive or prevailing rate of interest? The answer to this question is bound up with the more fundamental question concerning the basis of the right of any investor to receive any interest at all. But, no matter what answer we give to this latter question, no matter what justification of interest we may adopt, we cannot prove, we can have no ground upon which to erect the beginnings of a proof, that the capitalist has a right, as capitalist, to more than the prevailing or competitive rate of interest. If we assume that interest is justified as the product or fruit of capital, we have no reason to assert that the so-called product has a higher value than men attribute to it in the open market under competitive conditions. If we regard interest as the due reward of the capitalist's sacrifices in saving, we have no ground for maintaining that these are not fully remunerated in the current rate. If we adopt the theory that seems to be most satisfactory and least assailable, namely that interest is chiefly justified on grounds of social utility, inasmuch as the community would probably not have sufficient capital unless men were encouraged to save by the hope of interest, we must likewise conclude that the current competitive rate is sufficiently high, since it brings forth sufficient saving and sufficient capital for society's needs. The argument based upon this theory may be stated summarily as follows: Since interest on capital cannot be shown to be unjust on individual grounds, that is as a payment from the purchaser of the product of capital to the owner of capital (for it must be remembered that the consumer is the real and final provider of interest on capital), it will be justified on social grounds if it is necessary in order to evoke sufficient social capital; and there is an overwhelming probability that it is necessary for this purpose. Since interest is justified only for this purpose and to this extent, the just rate of interest cannot be higher than the rate that attains this end, which in our time is the competitive rate.

The doctrine that capital has no right to more than the competitive rate of interest is accepted by the social estimate everywhere (see Final Report of the U.S. Industrial Commission, p. 409). It is implicitly asserted in the teaching of the theologians that the competitive rate is the just rate in the case of money loaned (cf. Tanquerey, "De Justitia", n. 906). Where the risk and other circumstances are the same, men do not value an investment any higher than a loan; they will put their money into the one or the other indifferently; consequently, it would seem clear that, when the circumstances just referred to are the same, a fair return on invested money need not exceed a fair return on loaned money. To be sure, investors and business men do obtain more than the competitive rate of interest in some years and in some enterprises, even where competition is active and constant; but this advantage is either offset by exceptionally low rates in other years, or it is due to unusual business ability, or it arises from an increase in the value of the land connected with the enterprise. In all these cases the exceptionally high rate is undoubtedly lawful morally, but the excess is due to other factors than the capital pure and simple. Since the prevailing or competitive rate is sufficiently high to satisfy the demands of justice in businesses that are subject to competition, there seems to be no good reason why it is not, generally speaking, sufficiently high in monopolistic concerns. The owner of a monopoly has no more right to take advantage of the helplessness of the consumer in order to extort an exceptionally high rate of interest on his investment than the money-lender has to exploit the distress of the borrower in order to exact an exorbitant rate of interest on the loan. It would seem that the only exception to this rule would occur when the monopoly, while paying a fair wage to labour and a fair price to those from whom it buys materials, introduces economies of production which enable it to sell its goods at less than the prices charged by its competitors, and yet make unusual profits and interest on its investment. In such a case it seems reasonable that a monopolistic concern (more properly, its active directors, who alone have effected the productive economies) should receive some of the benefits of the cheaper methods of production. On the other hand, there is no good reason why the monopoly should appropriate all the benefits of the improvement. If it does not share them with the consumer by reducing prices below the competitive level, it renders no social service to compensate for the social danger which is inherent in every monopolistic enterprise. As a matter of fact, the great majority of existing monopolies do not pay higher wages nor higher prices for material than competitive concerns, and yet they charge the consumer higher prices than would have prevailed under competition (cf. Final Report of the Industrial Commission, pp. 621, 625, 660).

In the preceding paragraphs reference is had to monopolistic concerns that fix prices without any supervision or restriction by the State. When the public authority exercises adequate control over the charges of public service monopolies, such as gas and street-railway companies, and determines these freely and honestly, it would seem that the monopolistic corporation has a right to collect the full amount of the charges established by the public authorities, even though they should yield unusual profits on the investment, for the presumption is that such charges are fair to both producer and consumer. No such presumption extends to those cases in which the state control over charges is only mildly corrective and partial, instead of fundamental and thorough.

'''II. MONOPOLISTIC METHODS'''

The methods and practices employed by monopolies in dealing with their rivals did not occupy the attention of the older moral theologians who wrote on the subject of monopoly. Nor have recent writers given this phase of the subject the attention that it deserves. As a consequence, authoritative ethical teaching is as yet silent, whereas public opinion regards as immoral most of the practices by which monopolistic concerns harass and eliminate their competitors. Among the most notable of these methods are discriminative underselling, the factor's agreement, and railway favouritism.

Discriminative underselling occurs when the monopoly sells its goods at unprofitably low prices in the territory in which it wishes to destroy competition, while imposing unreasonably high prices elsewhere. While the independent dealer who is driven out of business by this device has no strict right to the patronage of the customers who are drawn away from him through the low prices established by the monopoly, he has a right not to be deprived of that patronage by unjust methods. According to a general and far-reaching moral principle, a man is unjustly treated when he is prevented by unjust means from obtaining an advantage which he has a right to pursue (cf. Lehmkuhl, "Theologia Moralis", I, n. 974; Tanquerey, "De Justitia", n. 588). Among the unjust means enumerated by the moral theologians are: force, fraud, deception, falsehood, intimidation, and extortion. Now when a manufacturer or a merchant is deprived of the patronage of his customers through ruinously low prices, which the monopoly is enabled to maintain by means of the exorbitantly high prices that it establishes at another place or time, he is deprived of this advantage by unjust means. The unjustly high prices are as truly the means by which the independent dealer is injured, as the lying reports brought to a would-be benefactor are the means by which his intended beneficiary is deprived of a legacy. This is the stock example used by the moral theologians to illustrate the general principle stated above. When, however, a business concern eliminates a competitor by lowering prices universally, and keeping them low even after the latter has gone out of business, no injustice is done, because no unjust means are employed. Even when a monopolistic concern lowers prices everywhere at the same time, and raises them to an unjust level only after its competitors have been driven from the field, the latter would seem to be victims of injustice. For, although the unjust prices do not come into existence until after the injury has been accomplished, they are as certainly the means whereby the injury was done, as though they had been established simultaneously with the ruinously low prices. In both cases the exorbitant prices operate as the moral cause of the act by which the unprofitably low prices are established.

The factor's agreement is exemplified when a merchant engages to handle no goods, or no goods of a certain kind, except those manufactured by a monopoly; should the merchant decline to enter into this agreement, the monopolistic concern will refuse to sell him any goods at all. If the agreement is established, the result is that the rivals of the monopolistic manufacturing concern are deprived of the patronage of the merchant through intimidation. It is a species of secondary boycott, inasmuch as the monopoly refuses to have business intercourse with the merchant, unless the latter refuses to do business with the independent manufacturer. It seems sufficiently clear that boycotts of this kind are unreasonable and unjust whenever, as in this instance, there exists no sufficient reason for the intimidation and the refusal of intercourse (see LABOUR UNIONS, MORAL ASPECTS OF). Indeed, the motive of the monopoly is, as a rule, not merely lacking in reasonableness, but positively unjust; for its ultimate aim is not simply to acquire the patronage that now goes to its rivals, but in addition to raise prices to the consumer after its rivals have been eliminated.

Railway favouritism is the most important of all the methods of monopoly. It has in all probability been as effective in creating and maintaining monopolies as all the other methods combined. It appears under many forms, but its essence is found in the fact that the goods dealt in by a monopoly are carried by the railroad at a rate so much below that charged to independent dealers that the latter must either go out of business or be content with insufficient profits. This practice is undoubtedly immoral: (1) because it is forbidden by the civil law; (2) because the railroad, as a quasi-public agency, is under obligation to treat all its patrons with the same distributive justice that the state itself would be obliged to accord them if it were the owner of the railroads; (3) because the lower charges collected from the monopoly imply unjustly high charges extorted from the independent shippers. As a violation of the civil law, railway favouritism is against legal justice; as unequal treatment of different patrons, it is a violation of both distributive and commutative justice, precisely as the unequal imposition of taxes violates both these forms of justice. If the rate accorded to the monopoly for carrying its goods is sufficiently high to be just, the higher rate imposed upon its rivals exceeds the limits of justice. If the former rate is so low as to be unremunerative to the railroad, the injustice done to the independent dealers is still greater, inasmuch as they are compelled to bear a part of the charges that should be defrayed by the monopoly. The favours accorded to the latter are not deducted from the normal revenues and profits of the railway company.

As a matter of purely natural justice, a railroad might concede somewhat lower carrying rates to a monopolistic concern because the monopoly ships goods in larger lots. The cost of such transportation is always smaller than when the same volume of goods is carried in separate lots for several different concerns. Nevertheless, even this degree of favouritism is a violation of legal justice, and frequently a violation of charity as regards the smaller shipping concerns. Inasmuch as the practice of railway favouritism to monopolies is seldom confined within these narrow limits, the question raised in this paragraph is not of much practical importance. Again, the railroad might be absolved from the charge of violating natural justice if the lower rates which it extended to the monopoly did not fall below the lowest level (pretium infimum) of justice, while the charges exacted from the independent shippers did not exceed the highest level (pretium summum) sanctioned by justice. A private enterprise, such as a mercantile concern, could probably be absolved from the stigma of injustice if it indulged in this practice toward its different customers. But, as we have seen above, a railway is not a purely private concern. Since it performs a quasi-public function, it would seem to be bound by the same rules of distributive justice that would govern the State, if the latter were operating the business of transportation. The share of the monopoly in the immorality and injustice connected with railway favouritism consists in the fact that it requests, urges, and sometimes intimidates the railway to indulge in the practice. The monopoly is therefore a co-operator. In the language of the moral theologians, it is a mandans, or principaI, and likewise a participans, or beneficiary (frequently the only beneficiary) of the injustice done to its rivals through overcharges for transportation.

While monopoly is not necessarily unjust, and while any particular monopoly may be free from unjust practices, experience shows that the power to commit injustice which is included in monopoly cannot be unreservedly entrusted to the average human being or group of human beings. Consequently, it is the duty of public authority to prevent the existence of unnecessary monopolies, and to exercise such supervision over necessary monopolies as to render impossible monopolistic injustice, whether against the independent business man through unjust methods, or the consumer through unjust prices. Many of the moral judgments enunciated in this article will perhaps strike the reader as lacking in positiveness, inasmuch as they are modified by such phrases as "it would seem," "it is probable," "it is reasonable". Yet no other course was possible. Concerning most of the specific questions discussed in the foregoing pages, there exists no specific teaching by the Church, or even by the unanimous voice of theologians. There are not even well-defined bodies of theological opinion. All that can be done is to draw conclusions from, and make specific applications of, the more general principles of justice as found in approved Catholic sources.

ELY, Monopolies and Trusts (New York, 1900); RIPLEY, Trusts, Pools, and Corporations (New York, 1905); Reports of U. S. Industrial Commission, I; IX (Washington, 1903); HOWE, Privilege and Democracy in America (New York, 1910); BLISS, New Encyclopedia of Social Reform, s. v. Trusts; SLATER in Irish Theological Quarterly (July, 1906); RYAN, ibid. (July, 1908); LUGO, De Justitia et de Jure (Lyons, 1670); TANQUEREY, De Justitia, (New York, 1904); LEHMKUHL, Theologia Moralis, I (Freiburg, 1893); VERMEERSCH, Quaestiones de Justitia (Bruges, 1901);. JANNET, Le Capital, la Speculation et la Finance (Paris, 1892).

.