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10. Monopoly and Competition > 2. Cartels and Their Consequences

F. The Problem of One Big Cartel

The myth of the evil cartel has been greatly bolstered by the nightmare image of “one big cartel.” “This is all very well,” one may say, “but suppose that all the firms in the country amalgamated or cartelized into One Big Cartel. What of the horrors then?”

The answer can be obtained by referring to chapter 9, pp. 612ff above, where we saw that the free market placed definite limits on the size of the firm, i.e., the limits of calculability on the market. In order to calculate the profits and losses of each branch, a firm must be able to refer its internal operations to external markets for each of the various factors and intermediate products. When any of these external markets disappears, because all are absorbed within the province of a single firm, calculability disappears, and there is no way for the firm rationally to allocate factors to that specific area. The more these limits are encroached upon, the greater and greater will be the sphere of irrationality, and the more difficult it will be to avoid losses. One big cartel would not be able rationally to allocate producers’ goods at all and hence could not avoid severe losses. Consequently, it could never really be established, and, if tried, would quickly break asunder.

In the production sphere, socialism is equivalent to One Big Cartel, compulsorily organized and controlled by the State.19 Those who advocate socialist “central planning” as the more efficient method of production for consumer wants must answer the question: If this central planning is really more efficient, why has it not been established by profit-seeking individuals on the free market? The fact that One Big Cartel has never been formed voluntarily and that it needs the coercive might of the State to be formed demonstrates that it could not possibly be the most efficient method of satisfying consumer desires.20

Let us assume for a moment that One Big Cartel could be established on the free market and that the calculability problem does not arise. What would the economic consequences be? Would the cartel be able to “exploit” anyone? In the first place, consumers could not be “exploited.” For consumers’ demand curves would still be elastic or inelastic, as the case may be. Since, as we shall see further below, consumers’ demand curves for a firm are always elastic above the free-market equilibrium price, it follows that the cartel will not be able to raise prices or earn more from consumers.

What about the factors? Could not their owners be exploited by the cartel? In the first place, the universal cartel, to be effective, would have to include owners of primary land; otherwise whatever gains they might have might be imputed to land. To put it in its strongest terms, then, could a universal cartel of all land and capital goods “exploit” laborers by systematically paying the latter less than their discounted marginal value products? Could not the members of the cartel agree to pay a very low sum to these workers? If that happened, however, there would be created great opportunities for entrepreneurs either to spring up outside the cartel or to break away from the cartel and profit by hiring workers for a higher wage. This competition would have the double effect of (a) breaking up the universal cartel and (b) tending again to yield to the laborers their marginal product. As long as competition is free, unhampered by governmental restrictions, no universal cartel could either exploit labor or remain universal for any length of time.21

  • 19. If all the factors and resources are absolutely controlled by the State, it makes little difference if, legally, the State owns these resources. For ownership connotes control, and if the nominal owner is coercively deprived of control, it is the controller who is the real owner of the resource.
  • 20. The only author, to our knowledge, that looks forward to One (voluntary) Big Cartel as a potential ideal is Heath, Citadel, Market, and Altar, pp. 184–87.
  • 21. Cf. Mises, Human Action, p. 592.