Two Major Qualifications of General Economic
Analysis. The treatment thus far has dealt with “pure”
theory, oversimplified in two respects in particular,
where it must be supplemented, though very briefly.
One of the two is monopoly—including “monopoloid”
situations where either sellers or buyers are too few
for effective competition—the other, money and prob-
lems due to its use. The former may be more quickly
disposed of as to main essentials. Historically, as ob-
served earlier, the founders, Smith and Ricardo, wrote
“nonsense” about monopoly pricing; and J. S. Mill was
little better. By 1890, Alfred Marshall had stated the
principle correctly, in words and mathematically. (A
mathematical study had been published in French by
A. A. Cournot in 1838, but it received general notice
only when rediscovered and published in English, in
1897, as Researches Into the Mathematical Principles
of Wealth, with a bibliography of mathematical eco-
nomics by Irving Fisher.)
The monopolist's interest plainly is to adjust the
supply and through it the price so as to maximize his
total net revenue or profit (not to maximize the price).
Monopoly is less important in fact than it is psycholog-
ically because the public greatly exaggerates both its
prevalence and still more the real evil. Much monopoly
is “natural,” even inevitable, and more is beneficial.
Governments grant temporary monopolies by patent,
copyright, etc., to encourage useful innovations, and
a large share of those privately set up work in the same
way. On the other hand, the public encourages costly
monopolies in the fields of labor and agriculture, and
in foreign trade, though “protection” does not directly
establish monopoly, as early writers said.
Exaggeration of the occurrence of monopoly is a
common ground for condemning free enterprise
—alleging that market competition is unreal or
ineffective. This ignores bankruptcy figures and other
facts proving the contrary. Pointing out the error does
not imply that business monopolies do not exist or
present no serious public problems, but public action
itself causes restrictions more costly to society. The
classical political economists thought monopoly bad,
but proposed no action except negatively not to estab-
lish them. In modern times “anti-trust” laws have
become familiar, but in the United States they exempt
highly restrictive labor unions, and “administered”
prices.
