Free Market Economics: A Basic Reader

Competition, “Big Business,” and Monopoly

Burton Rascoe

Haven’t you at one time or another remarked, or heard, without protest, a friend remark: “Radio and TV would be all right if it weren’t for the commercials,” or “He used to be a pretty good writer, but he is turning out nothing but commercial stuff nowadays,” or “Commerce and religion don’t mix well,” or “It’s the commercial angle that is tied in with the project that I object to”?

If so, have you ever realized that every one of those expressions and others like them are nothing whatever but displays and airings of baseless and rather vulgar snobbery?

We are all—every single one of us—engaged in trade. Trade is our way of helping ourselves and others.

So my milkman, in trade, helps me in more ways than he probably realizes; and he also helps so many other people. By helping the milk company to keep together, he even helps me to enjoy certain dramas on my TV. From the aggregate of profits in fractions of mills on the 28¢ bottle of milk, the company seeks to increase the number of persons it helps in the same way it does me.

One of the ways the company can increase its number of milk customers is by advertising; and one of these ways of advertising is by helping the television companies to keep in business by buying time from the companies for the televising of dramas for which writers, directors, producers, camera operators, electricians, costumers, makeup artists, script girls, announcers, and actors must be hired.

Every aspect of all this is commercial, from the creative talent of the writer of the drama, who trades the product of his brains for cash to the rest of the studio, to the work of the scrub woman who cleans up the studio. But the only thing that is labeled “commercial” is the selling-talk for the milk company, which appears at the beginning, in the middle, and at the end of the TV drama, and which consumes not more than three minutes of the TV audience’s time.

Yet those three minutes are entirely devoted by the company to the helping of others—commercial script-writers, actors, scenic artists, cameramen, electricians, and others—all of whom are provided with a means of livelihood by the indispensable and economically justifiable “commercial” which makes it possible to see a good drama, well acted, without cost in my living room.

It is impossible honestly to make a great deal of money without doing a great deal of good.

Hart Buck

Because we are human beings and not animals, we have at our command two principles whose realization secures us an immensely better living than animals can ever get for themselves.

In the first place, two people can work to produce more than twice as many valuable things as one can. In the second place, two people, simply by exchanging things they have, can each end up with more of the things they want.

Through these two principles, we can produce and enjoy immeasurably more as members of an economy than we could as so many Robinson Cru-soes or even Swiss Families Robinson. Through a third principle—freedom to shop—we can make the most of the economy we live in, and produce for our enjoyment more than ever.

This embraces not only the housewife’s freedom to shop for her detergent where she need pay least for it but also the producer’s freedom to shop for his materials where he can get them cheapest; the investor’s freedom to shop for the biggest return for his money; the employer’s freedom to shop for the kind of help that will give him the biggest production for what he pays; and the worker’s freedom to shop for the job that pays him best.

Competition is nothing but freedom looked at upside down. In a market where buyers are free to shop around, sellers must outdo each other to get and keep customers. Through competition there is produced the maximum of goods and services that the public wants most. Competition does not mean “dog eat dog.” Instead, it is the necessary preface to cooperation. Competition helps us to decide with whom we can best cooperate in production.

The driving force behind the free market is the enterprise of the businessman. He is the man who sees a chance to turn unused resources to account, and produce something out of them which the public will want. He buys materials, secures tools, hires helpers, and sells his product in the hope of recovering all his costs; including the cost of his own time and the cost of any tools that may be his. Perhaps he does not recover his costs, which means that some better use could have been made of all the resources involved, so that everybody loses all round. Or else he may be lucky, and recover all his costs plus something extra. The extra is profit, and nothing else is.

On the free market, his costs will tend up, and his prices will tend down, through the pressure of competition. They will so adjust themselves in time that the businessman will earn no more than he could get by renting his tools to some other businessman and going to work for him. When that happens, he has no profit any more. Profits are the businessman’s return for trying something new and desirable. When it is no longer new, profits stop. Profits are temporary only, but the gain to consumers, investors, and workers is permanent.

Most of us think of the businessman as distinct from the investor or the worker; we think of him instead as the operator of a going business. So typically he is; nevertheless, every investor is a businessman when he invests his money in hopes of a bigger return some day than his investment brings him now; and, most important, every worker takes on the character of a businessman when he fits himself for one line of work rather than another, in hopes of turning his own capacities to the best account possible in the end. You might say, therefore, that all of them are speculators, and so they are. Enterprise is speculation, and speculation is enterprise. Both of them mean anticipating in advance what other people will want, and facing the possibility that they won’t want it. Under the free market everyone is free to anticipate and speculate.

As businessmen and speculators—even if we are investors or workers—we may feel handicapped, not by our own freedom to shop around, but by other people’s; and so we may try to stop them, or to get the government to do it for us. We may succeed; this involves controlling the supply of some factor of production, and turning out at our own price a smaller product than the customers would take if we didn’t control the supply. But if we do, we may find that the pressure of competition makes us pay extra for the factors of production whose supply we don’t control. As monopolists, therefore, we may find ourselves no better off than if we had no monopoly. The public, on the other hand, loses the goods that the monopoly keeps them from getting.

Under the free market, therefore, some people may get special benefits temporarily, but everybody benefits permanently. Under a market that is not free, some people may get special benefits for a time, but everybody loses permanently. It is never under the free market that some people benefit at other people’s expense. This results, instead, from interference with the free market.

Joel Dean

The American consumer is, in the Great Society, the forgotten man. Antipoverty programs, the closed shop, foreign aid, minimum wage hikes benefit him little and are ultimately at his expense.

The consumer cannot count on the unselfish munificence of the government to look after his interests. Instead, he had best place himself in the hands of the self-serving competitor. The forces of competition alone can be counted on to compel suppliers, in an enterprise system geared to selfinterest, to achieve results which will advance the welfare of the consumer.

The vigor of the competitive process is, therefore, our main assurance of social benefit and consumer welfare. Protecting and strengthening the competitive process (which is quite different from protecting the individual competitor) is the white hope of the consumer.

The main peril to competition is not bigness, not concentration, not conglomerates (variegated product lines), not mergers, not even price conspiracies. Instead, the main peril is prejudice: distrust of the competitive system in its modem guise. The roots of this prejudice are basic misunderstandings concerning the economics of consumer welfare. Six economic fallacies are particularly important:

1. That competition is declining and is now an untrustworthy control device.

2. That competition becomes “cut-throat” unless curbed by government.

3. That profits are at the expense of the consumer.

4. That advertising makes consumers captive and is economic waste.

5. That the best way to take care of the incompetent is to make competition soft.

6. That job security is best attained by slowing down economic progress.

Let’s look briefly at each of these misconceptions. Although unobtrusive and eminently respectable, these economic misunderstandings are pervasive and perilous. They are working to undermine the protection that the consumer gets from vigorous competition.

1. Competition Is Declining and Is Now an Untrustworthy Control Device

Looking back nostalgically at the Tom Sawyer economy, we get a glowing glimpse of a structure of competition quite different from today’s. We see small, independent, local business firms by the thousands: the local grist mill, lumber mill, brewery, and carriage shop. What we forget is that each of these glorified competitors had a tight little locational monopoly sheltered by miserable transportation. What we often fail to see in our modem economy is the competition that counts. This competition is outside the purview of the conventional antitrust case. It creeps in on little cat feet, unobtrusively at first. It is not quite respectable at the start (for example, the discount houses and early supermarkets). It often works its beneficial miracles below the surface of consumer consciousness through the vehicle of “value-analysis” by industrial purchasers (such as the revolution in welding, die casting, and oxygen furnaces). Its fiercest fighting front is often the research laboratory. This is the competition that counts because it produces decisive cost savings, usually as a result of revolutionary new technology or spectacular rearrangement of functions, or dramatic displacement by substitutes. Generally speaking, it is outside the purview of the conventional antitrust case and the stereotyped concentration indices.

It is frequently an invader from outer space, that is, from a different industry or a foreign nation.

This is the competition that keeps the American economy among the most competitive in the world and that assures the American consumer a high and rising standard of living.

2. Competition Becomes “Cut-Throat” Unless Curbed by Government

One heritage of the great depression is a generalized fear of excessive competition. This fear leads on to the belief that the government must restrain these excesses by legislating minimum profit margins, for example, state “fair trade” statutes and laws against “selling below cost.” This misconception has had an important role in shaping public policy, which is opposed to competition in several sectors of our economy, notably agriculture and transportation. Thus, despite formal professions of faith, the evidence is that we really don’t believe in an enterprise economy—at least in these sectors. The precedent and the preconception that lie behind it are perilous for other sectors of our economy.

“Cut-throat” competition is a bogeyman whose influence is powerful but unwarranted. It is unwarranted because the degenerative tendency is a myth, probably. Even if true, it’s hard to see how competition can really be excessively vigorous from the viewpoint of the national interest. The misconception arises partly from confusing injury to an individual competitor with injury to the competitive process. Competition, if it is effectively to serve the consumer, must injure individual rivals and even annihilate some. And the notion that this elimination of the unfit will inevitably reduce surviving competitors to a sole monopolist is a theoretical extrapolation, unsupported by experience and applicable in only a few industries where scale economies are overwhelming relative to the small size of the market.

3. Profits Are at the Expense of the Consumer

It is almost standard operating practice for people who profess concern for consumer welfare to view corporate profits as being at the expense of the consumer and opposed to his welfare. This antiprofit bias infuses the viewpoints of many officials in big government and particularly of those in regulatory commissions.

We should all recognize that profits are usually an index of success in serving the public. In a competitive industry, most of the profits go to the more efficient suppliers, not to the marginal supplier whose costly output is nonetheless required to satisfy the full demand at the prevailing market price. The consumer gets a bargain in the few profit pennies per dollar he appears to pay. He pays less than appears for two reasons. First, because losses that are not formally book-kept are not offset against reported corporate profits. Second, because equity capital, which is costly, is treated in accounting as a free good. The consumer gets a bargain, not only because corporate profits are pardy illusory, but because the hope of profits and fear of losses (what makes the mare go) is the cheapest known form of incentive and remuneration.

4. Advertising Makes Consumers Captive and Is Economic Waste

Appalled by the huge sums spent on the advertising and annoyed by being a part of a captive audience, grieved by the gullibility of all consumers except themselves, and aroused by exposures of the hidden persuaders, many well-meaning reformers believe that advertising disfranchises the consumer and wastefully cancels claim against outrageous counterclaim.

Looking at the matter from the standpoint of the national interest in consumer welfare, we should recognize that advertising economizes leisure and is a cheap way for consumers to pre-shop. The most that advertising can do is to get a person to try the product; and his own experience with it, plus reports from his acquaintances and the synthetic experience of consumer research services, develops immunizing skepticism.

We should also recognize that advertising opens many more doors to new and beneficial competition than it closes. The best weapon against the hidden persuader of one manufacturers advertising is that of his competitor, particularly the countervailing power of distributor brands which erode the consumer franchise of a manufacturer’s brand.

5. The Best Way to Take Care of the Incompetent Is To Make Competition Soft

Much anticompetitive legislation and administrative and judicial case law is rooted in the thoroughly American and highly laudable desire to take care of the incompetent. The question is not whether society will look after the unfortunate. In this our society is doing a good job. The danger, instead, is that we will take care of them in the wrong way, that is, in a way that will deter incentives for self-improvement and will block the automatic adjustments of a competitive economy and prevent its serving consumers best. Charitable treatment of the less fortunate will be more efficient and less damaging to the growth and strength of our economy if it is entirely divorced from trying to protect the individual competitor against the consequences of his own non-competitiveness.

6. Job Security Is Best Attained by Slowing Down Economic Progress

The quest for job security is universal. Each of us is very much alive to any peril to our job. Most of us would like to feel that a beneficent government will look after this vital matter and make sure that economic change will not imperil our job.

Unfortunately, the competitive process has few champions and no lobby. The job security of the individual citizen can best be achieved, not by placing roadblocks in the path of technological progress, but instead by removing them. Society is better off to help the individual solve his problem of adapting to economic progress by supplying information, incentives, and opportunities for re-education, rather than by trying to slow down economic progress.

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Economic misunderstandings like these six are causing a widespread, almost unconscious prejudice against competition. There is disconcerting reluctance to rely upon competition for the impersonal force which compels individual competitors, each geared to self-interest and trying to increase his own market power, to unconsciously serve society.

The real debate on domestic policy in the United States at mid-century concerns the proper role of government—and those who wish for less government in economic affairs are obviously losing. The judges, in this case the voters of the United States, have been giving verdict after verdict to those who argue for more government intervention.

Benjamin A. Rogge

Those of us who are losing the debate often ascribe our losses to the work of men in academic life and elsewhere who are preaching socialism and trying to subvert the traditional American system of free enterprise. This easy and tempting explanation implies that our un-American opponents should be silent, and thus permit true American principles to prevail.

This explanation is both untrue and dangerous. It is dangerous because it could lead us to impose restraints on freedom of speech and of press that would indeed be un-American. It is dangerous because it leads us to relax our efforts to prepare and present our own case as powerfully and persuasively as possible. It is untrue, because not one in five hundred of those who favor more government intervention is a committed socialist or even basically opposed to free private enterprise. On the contrary, most of them are committed to the free market arrangement and believe that their proposals are designed to strengthen rather than to weaken it. Specifically, they argue that the market arrangement can survive only if certain of its weaknesses and failures are offset by appropriate government action.

For example, it is alleged that the free market economy tends to be unstable, alternating between boom and bust, and that this instability will destroy the economy unless corrected by appropriate government action. Though this is a serious charge, I believe both the analysis and the call for government action are mistaken.

What I prefer to discuss here is an equally serious charge made against the free market by its friends.

Their charge is that economic freedom, though desirable, is not strictly possible—that in an unhampered market the individual would not be truly free but would be imposed upon by monopolies of various kinds and degrees. This charge appears in the preamble to one piece of interventionist legislation after another. Thus, the worker is said to need special protection because of the monopoly power of the employer. The farmer must be protected against monopolies on both sides of his market. Certain kinds of business firms must be protected against certain other kinds. Certain price decisions must be influenced by government because of the monopoly power of the firms involved. And on and on it goes. Clearly, if private monopoly is indeed this ubiquitous, a presumption is established in favor of a substantial role for government.

In my opinion, however, and this is to be the central thesis of my argument, the unhampered market tends to be a competitive market. In fact, strong action by government is all that can prevent its being a competitive market.

Phrased another way, my thesis is that positions of monopoly power tend to be short-lived and relatively ineffective, except as they receive the positive assistance and protection of government. Or phrased still another way, government in the United States has done far more to promote monopoly than to promote and permit competition.

Good for Others, Not for Me!

In developing the argument, I admit that there are certain very human attitudes which tend to work against competition. Although each of us may approve of competition as a general principle, we are less than anxious to face competition in our own personal activities. Competition is good in principle, we say, but not in our particular industry or occupation, or not when it comes from overseas, or not when it comes from people improperly trained in this occupation.

A natural outcome of this attitude is the attempt to reduce competition by cooperative action among would-be competitors. This tendency was clearly recognized by Adam Smith, the father of free market economics. In The Wealth of Nations published in 1776, he wrote as follows: “People of the same trade rarely meet together even for merriment and diversion except that it end in some contrivance to raise prices.”

A second reason for questioning the possibility of a truly free economy is the influence of advancing technology on the size of the firm. The continuing technological revolution has produced a situation in one industry after another where, to be efficient, a firm must represent a large accumulation of capital, translated into buildings, machinery, and distribution organizations of great size and complexity. This growth in the size of the efficient firm is another challenge to the maintenance of the competitive economy.

A third reason often advanced for skepticism about competition is the difficulty of keeping oneself informed on the alternatives facing him in the multiple markets in which he operates, and the associated difficulty of retaining the mobility to shift his course of action in response to changes in those market alternatives.

A Temptation To Connive

The modem economic world is indeed a complex and confusing world, and these charges deserve serious attention. Let us take the charge that collusion rather than competition tends to be the distinguishing characteristic of the unregulated market economy. It is true that men are always tempted to practice collusion. However, it is equally true that the same forces which lead to the formation of cartel agreements tend to destroy those agreements.

The principal force involved here is simply the desire to make money. For example, suppose that a number of farmers agree to hold livestock off the market in a local area. The effect of this, of course, is to cause livestock prices to rise in that area. But with each increase in price, the individual farmer is under greater temptation to break the rules of the cartel and sell his hogs or beef cattle. At the same time, each increase in price attracts more livestock to that local market from farms outside the agreement area. The members of the cartel must then battle both their own members and outsiders to maintain the effectiveness of their operation.

In the same way, if a number of business firms agree to divide the total market into exclusive territories, the resulting price increase tempts each firm to try to increase its sales so as to increase its profits. However, each firm’s own territory provides only limited opportunities for increased sales, and the temptation is enormous to expand sales by poaching on the neighboring, forbidden markets.

Cartels in America

The history of cartels in America is a history of brief initial successes followed by increased cheating on the agreement, then serious internal conflict, and eventual breakdown and dissolution of the cartel. This was the history of cartels long before the government made such agreements illegal per se, when the only restraining influence was the time-honored common law practice of court refusal to enforce cartel contracts. I could provide one case history after another to support my thesis. At the same time, I know of no cartel agreement in the history of this country that has been both effective and long-lived except those that have had the explicit support of government.

The farm program in this country in the last 35 years has been nothing more nor less than a government sponsored and operated cartel arrangement among otherwise competing producers. The nonfarm citizens have had to pay both the higher food and fiber prices and the cost of operating the cartel producing those higher prices.

In the same way, the trade union, a cartel arrangement among otherwise competing sellers of the services of labor, has been given the explicit support of government. In addition, trade unions have been permitted methods of enforcing their cartel rules that have made a mockery of the legal prohibition against assault.

In the same way, certain business and professional groups have been given legal protection in their cartel arrangements through licensing and franchise protection and through so-called fair trade laws.

The seriousness of these actions by government lies not only in the economic consequences but also in the violation of an important cornerstone of the free society—equality before the law. The union member, the farmer, and certain businessmen have been encouraged and assisted in doing precisely that for which other businessmen are sent to jail. The blindfolded goddess of justice has been encouraged to peek, and she now says with the jurists of the ancient regime, “First, tell me who you are, and then I will tell you what your rights are.”

To summarize the point: although there is a natural tendency toward collusion among those who otherwise would be competing, there is an equally natural and ultimately stronger tendency for such collusive agreements to break down. The greatest contribution the government can make in this regard is to stop assisting and encouraging cartel groups.

Adam Smith followed the words I quoted above on “people of the same trade,” and so forth, by saying, “There is no law that would be consistent with either liberty or justice that could prevent such meetings, but surely the government should do nothing to encourage such meetings, or to make such meetings necessary.”

We have in the traditions of our common law refusal to enforce cartel agreements all that is really needed to prevent such agreements from destroying the basic competitiveness of the American economy.

Growth in Size of Firm

I turn now to the second argument: the threat to competition that is said to be posed by the growth in the size of the firm. Here again, there is no disputing the fact that advancing technology has led to larger and larger firms in many industries. However, in some industries advancing technology has made it possible for small, even household units to compete successfully with the giant firms. The development of efficient and relatively inexpensive tools, for example, has made it possible for many a husband to run a basement factory for producing furniture, at least for use in his own home.

But rather than rest the case on this possibility, I would further point out that the growth in the size of the firm often has been matched, or more than matched, by the growth in the size of the market. It is the size of the firm relative to the market that is important, and not the absolute size of the firm. Advancing technology also has been at work in transportation and communication, and this has had the effect of widening all markets.

For example, as a result of the automobile, no giant supermarket today has as much control over its market as did one small store in the small Midwestern town where I was raised. The United States Steel Corporation has less control of its market than did many a small backyard iron foundry in the last century. Transportation costs shielded the backyard operation from competition located no more than a few miles away. U. S. Steel, on the other hand, faces competition from firms in every steel producing country in the world.

In the same way, the worker living in a small town with only one major employer usually has the real alternative today of driving no more than 25 miles to dozens of other employment opportunities. Thus, in many cases, improved transport and communication facilities have widened markets more rapidly than firms have grown in size, and competition has increased rather than diminished.

A second way in which markets have been widened by advancing technology is through the development of substitute products and materials. Thus, the major steel companies, in almost every use for steel, face tremendous competition from substitute materials—aluminum, wood, concrete, plastics—even glass. In fact, it is quite unrealistic to speak of this arrangement as the steel industry. There really exists an entire complex of firms and industries, and no one firm—no one industry even— approaches monopoly power when so used. The typical textbook, man-on-the-street way of defining industry—and hence, of evaluating monopoly power—is both unrealistic and dangerous. It leads to a gross exaggeration of the market power actually possessed by the firms involved.

But again, let us not rest the case on these possibilities of widening markets. In spite of these powerful influences, there still can exist situations in which a given firm, or small group of firms, dominate a given market—no matter how wide that market has become. Do these not constitute hard core cases of monopoly, calling for government action to break them up or offset their consequences by creating counter monopolies of labor or agriculture or other business firms? My answer is no!

Success Through Service

To begin with, it is extremely unlikely that a firm can acquire market power except by laudable efficiency in serving the wishes of consumers. Is this firm to be rewarded for its efficiency by government antitrust action? And, if so, what of the consumer and the service he has been receiving?

Furthermore, if this firm uses its market power to raise prices above the competitive level, other firms will be tempted to enter the industry. These other firms can include large, diversified companies with adequate capital to invade any market. In this country in recent years we have seen many cases of large firms in a given industry suddenly finding themselves facing the competition of other large firms, already established in other fields, but coming into this market to reap the rewards of diversification and higher profit margins. The result is that even the powerful firm in a dominant position in its own market must behave as if it faced immediate important competition, because a failure to do so would soon attract that competition.

Beyond this, the very process of technological progress which may have created this dominant firm tends, over time, to weaken its position. Other firms with newer, better ideas will come into the field, and the original firm will find its share of the market shrinking. Thus, in spite of the fact that the Supreme Court decided long ago against breaking up the United States Steel Company, that company’s percentage share of steel sold by American producers has declined steadily from over 75 per cent to around 35 per cent.

It is the little foxes, indeed, who nibble away at the market, who improvise and experiment, whose administrative simplicity permits daring moves, who reduce the stature of the giant to one quite consistent with almost any meaningful definition of competition. This process of short-run market power being replaced by someone else’s short-run reign, in turn supplanted by a third, and so on, was eloquently described by the late great Austrian and Harvard University economist, Joseph Schumpeter. He argued, not only that the dominance attained through technological advance is short-lived, but also that it is this possibility of at least short-run market power and security that induces firms to undertake the technological explorations which are revolutionizing the modem world.

In summary, then, although the process is not perfect nor instantaneous, there are powerful forces always at work in the modem world to create a dynamic and effective competitive process, protecting each element in the economy from each other.

Turn now to the third charge, to the claim that individuals in the modem complex economy do not possess the necessary knowledge and mobility to force competitive practices on those with whom they deal.

I would first say that the modem economy, with its advanced techniques of communication and transportation, provides the individual with more information and better and cheaper means of transport than ever before in the history of the world. But beyond that, it is not necessary that all individuals in a given market be completely informed and completely mobile for adequate competitive pressures to exist.

For example, I know almost nothing about the workings of a television set. What protects me then, when I buy a television set or have one repaired? It is the fact that there are a substantial number of men who do have the required technical knowledge. The television dealer who expects to prosper and survive must meet the demands of all with whom he deals, or quickly lose out to other more reputable and reliable dealers. On the other hand, in certain areas I am the better informed buyer, and in these areas I protect the less well-informed.

In the same way, I have a personal commitment to the college where I work and the community where I live which seriously reduces my mobility. Here, I am protected in part by the good will of those who employ me, but I am protected as well by the fact that the college must offer a general program of working conditions and salaries that will retain the uncommitted and that will attract the appropriate staff replacements and additions.

Not All Must Move at Once

This same process works to effect the many adjustments that must continually be made in a dynamic economy. Usually, in a dying industry or area, not all workers must leave at once. The process customarily takes years. The adjustments are made by the sizable mobile element in every work force, thus protecting the less mobile from loss of employment or exploitation. The adjustment process can be left to each individual and does not require that everyone have complete knowledge and complete mobility.

Another variant of this argument is the charge that the consumer is deliberately misled and confused by advertising, and hence falls easy prey to noncompetitive sellers. I have heard this argument presented by many people from all income levels and all walks of life. But I have yet to find one of them who would admit that he himself was the helpless victim of Madison Avenue. It is always “they”—a vague and never identified “they”—who are thus bamboozled. The fact is that advertising itself is competitive, an expression of the basic competitiveness of the American economy, a process through which all of us receive the necessary information for the making of decisions.

In summarizing my answers to the charges that have been made against the possibility of a truly competitive free market, let me repeat, I do not insist that the processes at work produce instant pure competition, in every market in the country, at every moment of time. I say only that the forces are sufficiently strong, and work in good enough time, to give us a workably competitive economy, an economy that does not need government action to offset the noncompetitive elements.

More Harm than Good

When I have admitted that the system is not perfect, does this not leave a case at least for government antitrust legislation to handle the imperfections that remain? In theory, a case might be made for this; but in practice, I see no evidence that antitrust legislation and action ever can be devised to correct the few imperfections without the greater possibility of destroying dynamic competitive firms.

How is one to distinguish between the firm that has acquired temporary market power through greater efficiency and the one that has acquired power without being efficient? To break up the firm that is efficient is to work against true competition rather than to promote it. Nor can we seek to maintain competition by maintaining competitors. This has been a common thrust of our antitrust action. Yet, in fact, it thwarts competition rather than promotes it. Under true competition, the resources come under the control of those firms which have proved themselves the most efficient in serving the interests of consumers. The weeding-out process is severe and effective. To stop that process, to try to maintain a given number of competitors, is to promote inefficiency, not competition.

Another direction taken by our antitrust laws has been that of prohibiting unfair competition. Unfair competition has been defined as selling below cost in order to drive out rivals and thus gain a dominant position in the market. In practice, though, it is virtually impossible to distinguish between low prices that are a natural part of competitive maneuvering and those that are designed to establish market dominance. In practice, then, this legislation has done much more to reduce the competitiveness of the economy than to enhance it. In addition, it has contributed to a general climate for business decision-making characterized by uncertainty and confusion. Thus, one major electrical manufacturing firm recently was under indictment for charging prices that were thought to be too high and at the same time for charging prices that were thought to be too low.

Antitrust legislation generally has been subjected to such varied interpretations that the most experienced legal staff in the country cannot, with any certainty, advise a company on what practices will be illegal under the legislation. Surely, this reflects the basic philosophical and practical weakness of the antitrust approach itself.

In conclusion, then, I would offer as the only meaningful definition of monopoly the following one used by Adam Smith: “Monopoly is a government grant of exclusive trading privileges.” If this definition be accepted, it follows that what the government must do, and all that it must do, to promote competition is to stop fostering and protecting monopoly, whether it be in business, or in the professions, or in agriculture, or in labor. In the words of the great Belgian historian, Henri Pirenne, in his study of the emergence of competitive capitalism from the blight of the government-protected guild economy: “Capitalism is not in itself opposed to the tendencies of human nature, but its restriction is. Economic liberty is spontaneous.

In their denunciation of capitalism the socialists use some frightful phantoms. The oldest and perhaps the most effective one is the notion that monopolistic concentration of business inheres permanently and inseparably in capitalism. They depict in vivid colors the horrors of monopolistic capitalism and then conclude that a free enterprise economy obviously requires governmental restraint lest it deteriorate to a chaotic system of business monopolies and public oppression.

Hans F. Sennholz

Recalling the era of “trusts” and “tycoons” around the turn of this century, these socialists valiantly defend the Sherman Antitrust Act of 1890, the Federal Trade Commission Act, and the Clayton Antitrust Act of 1914 which aim at the suppression of business monopoly. And they will be shocked if anyone casts doubt on the wisdom of the antitrust legislation.

Unfortunately, even free enterprisers are divided on this point. Some defend our antitrust legislation and the governmental supervision of big business which it entails, while others summarily reject the prevailing notions on monopoly and the antitrust activity of the government.

An unbiased investigation of the monopoly problem might well begin with the question: Are monopolies inherently bad? Are they identical with destruction of competition, with enormous monopolistic gains, and with gouging of workers and consumers? Under what conditions, if any, are monopolies really the evil organizations which they are assumed to be?

In an unhampered market economy a monopoly affords no cause for alarm. A company that has exclusive control of a commodity or service in a particular market is prevented from exploiting the situation by the following competitive factors: potential competition, competition of substitutes, and the elasticity of demand.

In the United States thousands of different commodities are each produced by a single producer, i.e., by a monopolist, and no one seems to care about it. The 5 and 10 cent stores are full of items produced by monopolists. And yet, all these items are sold at competitive prices. Why? Because of potential competition. As long as there is potential competition, a monopolist cannot charge monopolistic prices.

Potential Competition

Potential competition exists in all fields of production and commerce which anyone is free to enter. In other words, wherever government does not prevent free entry through licenses, franchises, and other controls, potential competition exists. Most corporations are searching continuously for new lines and items of production. They are eager to invade any field in which business earnings are unusually high.

The invasion of another field by a corporation may involve no more than a simple retooling or reorganization that is achieved in a few weeks or months. Or, brand new facilities may be employed for an invasion. Thus one producer, whether he is a monopolist, duopolist, or a competitor among many, always faces the potential competition of all other producers.

Even if a corporation the size of General Motors were a monopolist with regard to certain commodities, it would have to act as if it were a single producer among many. For it continuously faces potential competition from the Fords, Chryslers, General Electrics, and others. These potential competitors undoubtedly have the resources, technical know-how, and marketing organizations to compete with General Motors.

But even if competitors of similar size and structure should be absent, the monopolist must be mindful of the potential competition that can arise overnight. Numerous financiers, promoters, and speculators continuously search for opportunities to establish new enterprises. They have formed new giant companies in the past. And they are willing to risk their capital again if they see an opportunity for profits.

Dreading the promoter who may invade his field, the monopolist therefore must act as if he were surrounded by numerous competitors. He must be alert and always “competitive.” He must continuously improve his product and reduce its price. For if he should relax, another company will soon invade his field. The newcomer is likely to be a formidable competitor for he has new machinery and equipment. He has new ideas and applies new methods of production. And he enjoys the good will of all customers. Indeed, a monopolist who relaxes invites disaster.

If an enterprise nevertheless enjoys a monopolistic position, it must by necessity be the most efficient producer in the field. In other words, in an industry endowed with freedom of entrance, a monopoly is an efficiency monopoly. For the government to impose restrictions on it or even dissolve it by force would be to destroy the most efficient producer and invite the less efficient to enter the field. In this case, the economy suffers a net loss in output and efficiency.

In my hometown a small manufacturer succeeded in gaining a monopolistic position in the production of creep testers, which are machines that test the behavior of materials at elevated temperatures. When I inquired into the reasons for his astonishing position, he explained with a smile: “I completely routed my two competitors, both billion-dollar corporations, by continuously improving the quality of my product and reducing its price. They finally abandoned the field.” Obviously, he would immediately invite his formidable competitors to re-enter the field if he failed to improve his product in the future, or charged monopolistic prices.

That government has not investigated or prosecuted this monopolist probably is due to the smallness of his operations. Experience, however, suggests that such large corporations as General Motors, du Pont, or U.S. Steel would face governmental investigation and prosecution if they were the monopolist. If this is true—and unfortunately there is no reason to doubt it—governmental prosecution aims at big business rather than at monopolies.

But even if American enterprises failed to compete with each other and potential competition failed to exert a restraining influence on monopolists—which is a most unrealistic assumption—the people would escape monopolistic pricing through recourse to substitutes. In many fields the competition of substitutes is more important than that of competing producers.

People’s wants may be satisfied by a variety of products and materials. In the manufacture of clothing, for instance, a dozen different materials vie with each other for the consumer’s dollar. The monopolist of any one material is powerless because monopolistic pricing would induce consumers to switch immediately to other materials. The producers of suspenders compete not only with each other and with potential competitors, but also with the producers of belts. In the transportation industry the railroads compete with trucks, cars, airplanes, pipelines, and ships. In the building industry lumber competes with aluminum, steel, bricks, and stones. And Bayer’s aspirin competes with Anacin and Bufferin.

In some cases, the adoption of substitutes requires large capital outlays which producers are not willing to make immediately. Complete substitution then will take time, although it will ultimately be as effective as immediate substitution. A railroad that wants to substitute oil for coal needs large capital for the purchase of diesel engines. Therefore, it may switch from coal to oil only when it needs to replace worn-out coal locomotives. A house owner may switch from coal to oil or natural gas when his old coal furnace must be replaced. Thus, within a period of several years, substitution will have its restraining effect on a monopolist.

Demand Elasticity

The existence of substitutes makes for demand elasticity which, in turn, makes monopolistic pricing unprofitable; for higher product prices would greatly curtail product demand, and thus sales and income, of the monopolist. Therefore, he again must act as if he were a competitor among many.

The same is true in all cases of demand elasticity, whether or not there are substitutes. For instance, electricity for heating must compete with such substitutes as oil, gas, and coal. However, as a source of light and of energy for power tools, it probably faces no substitutes. An electricity monopolist, nevertheless, would be greatly restrained by potential competition and demand elasticity.

If electricity prices would rise considerably, the most important consumers, such as industrial plants and other business organizations, would soon produce their own electricity. With the proper equipment anyone can produce his own. Of course, the monopolist may counteract this danger by charging different rates to his different classes of customers: low rates to all industrial users who are apt to produce their own electricity, and higher rates to all others. Assuming that residential users do not readily resort to independent power production, are they not liable to fall in the grip of a monopolist? No! Demand elasticity would prevent this. Many people undoubtedly could reduce their consumption of electricity without suffering men-tionable discomfort. A house owner who may enjoy the light of a hundred bulbs on a winter evening might easily curtail his consumption if electricity charges should increase greatly. But this curtailment of demand would reduce the sales and income of the monopolist.

All producers in fact compete with all other producers for the consumers dollars. The manufacturer of television sets competes with the manufacturer of freezers and refrigerators. If the monopolist of one commodity—say, television sets—should raise his price, the consumer may forego the purchase of a new set and buy instead a new refrigerator. We consumers do not allocate our income to the satisfaction of categories of wants but to that of specific wants yielding the greatest net addition to our well-being. This addition, in turn, is determined by the urgency of our wants and by the cost of acquisition. Rising costs obviously affect us adversely, which may induce us to purchase an entirely different product that now contributes most to our well-being.

Consumer resistance to monopolistic pricing finds expression in yet another form. People who suspect monopolistic practice by a producer tend to favor any newcomer who would compete with him. Any enterprise striving to invade the field is assured the patronage and good will of all dissatisfied consumers. In our example of the electricity monopolist, the industrial user producing electricity for his own consumption may decide to supply power also to his workers and neighbors who, at lower rates, would gladly transfer their patronage. Thus, in a free economy, even the electricity monopolist is greatly limited in his pricing policies.

The same limitations apply in all other industries, including the public utilities. A mail monopoly would face not only the people’s demand elasticity for mailing services but also the potential competition by the numerous intercompany mailing systems. At the present time hundreds of companies have intercompany mail delivery systems that could expand their services to include their workers, customers, and other people in their communities if the law allowed. The case is the same with other “public utilities” supplying goods and services such as water, telephone, and telegraph.

On Optimum Growth

In a system of unhampered economic freedom, a monopolistic market position could be attained only through efficiency. Without government intervention, an efficient enterprise tends to grow until it reaches its optimum size at which the unit costs of production are lowest. This optimum depends on the nature of the industry, the state of the product and capital markets, the rate of taxation, and the caliber of management. Obviously, a steel company requires a much larger capital outlay and work force than does a dentist’s office or a barber shop. Also, the enterprise managed by a brilliant businessman has a higher point of optimum than one managed by his mediocre successors. A monopolistic position can be attained only if the optimum size suffices to supply completely a given market.

The territorial expanse of the market which a monopoly is capable of supplying depends on two factors: the difference between the unit costs of production of the monopolist and those of his potential competitors, which determines the margin of superiority of the monopolist, and the unit costs of transportation, which are determined by the nature of the product and by the distances involved. A bulky commodity such as cement, for instance, is burdened with high costs of transportation. Consequently, the market of the cement monopolist will be relatively small, for an increase in distance from plant to consumer rapidly increases his unit costs. On the other hand, commodities with relatively low transportation costs such as watches or diamonds can be distributed over vast market areas.

This analysis of the territorial range of markets also reveals that bulky item monopolies are in a relatively favorable position to conduct monopolistic policies. While an American producer of watches must cope with foreign competitors all over the globe, a cement producer may be little concerned about the competition of another producer some 100 miles away. He may indeed be tempted to restrict output and raise prices in order to maximize his income. But, of course, such action would invite other producers to invade the territory of the monopolist. Another corporation soon would build a modem plant in that territory. With a new plant and the good will of all consumers, it undoubtedly would rout the monopolist.

It is apparent that a change in transportation costs, production technology, management, or any other cost factor can upset a monopolistic position. Also, a concentration beyond the optimum point is an invitation to failure, for the unit costs of production tend to increase again. The monopolist who disregards this fact invites potential competitors to invade his field and reduce him to his optimum size. There is no need for government to break up a giant enterprise; if it were too large, the competitors would reduce it.

This is not to deny that even in a capitalist economy a monopoly may temporarily reduce output and charge monopolistic prices. Having reached a monopolistic position through efficiency, a businessman may attempt henceforth to follow monopolistic policies. But the foregoing analysis clearly indicates that his attempts are bound to be short-lived. Soon, he will face a crucial struggle with powerful invaders producing with new equipment and enjoying the good will of the public. Of course, it is most unnatural and unlikely for a businessman to rise to eminence through product improvements and lower prices, and then suddenly to turn toward output curtailment and price increases. But if he should act in such a manner, which is conceivable, he practices self-destruction.

It cannot be denied that in our interventionist world many monopolies actually have the power to restrict output and charge monopolistic prices. But the reason for this unfortunate state of affairs is to be found in the multiplicity of government restrictions of competition. If the government prevents competitors from entering the field, the people lose their protection by potential competition. The public utility that enjoys an exclusive franchise is a local monopoly. In this case, the people’s only line of resistance is their demand elasticity and perhaps, also, their recourse to independent production. Meanwhile, the planners resort to political controls.

Through franchises, licenses, patents, tariffs, and other restrictions, modem government has in fact created thousands of monopolies. Having thus crippled and hampered competition, it then proceeds to control the monopolies. Political bodies now decide vital economic questions in many important industries. They regulate our railroads, airlines, and other means of transportation. They grant exclusive franchises in radio, television, telephone, and telegraph. They monopolize the production and marketing of electricity, water, and gas. They issue patents that assure their recipients monopolistic positions. And, finally, they own and operate the whole postal industry and prevent competition through fines and imprisonments. In all these cases, the government effectively restricts competition and thus creates local or national monopolies.

Labor legislation has granted monopolistic powers to labor unions, which control whole industries employing hundreds of thousands of workers. They close down vital industries and cripple the entire economy. Through the union shop arrangement, or directly through brute force, they dictate employment conditions in thousands of enterprises. All this is done in perfectly legal sanctity without interference by the government. On the contrary, the legal framework for this union power is provided by the very government that professes to oppose monopolistic practices and positions in the economy.

This frightful union power, in turn, forces enterprises to unite. A small businessman cannot possibly meet the challenge of a powerful industry union. He therefore is tempted to sell out to a giant corporation with greater power of resistance. Of course, even the giant corporation will be closed by unions. But it cannot be destroyed as easily as can a smaller company.

Effects of Tax Policy

The confiscatory taxation imposed by the interventionist state causes the same industrial concentration. The middle-aged founder and owner of a million-dollar enterprise is forced to sell out to a large corporation for fear of confiscatory estate taxation. In case of his sudden demise his widow and heirs, who may not be qualified to carry on his business, will face confiscatory inheritance taxes. They would have to liquidate the business in a very short time to meet the tax liabilities. As the sale of a specialized business requires great skill and good timing, the sale by the widow probably would entail large losses. Therefore, a responsible businessman will arrange the liquidation of his own enterprise in good time. He himself will sell out to his corporate competitors and invest the proceeds in marketable securities. Government bonds, for instance, can be readily sold for estate tax purposes. Thus, hundreds of small companies disappear every year.

Especially the most efficient small enterprises tend to be liquidated on account of tax considerations. A going concern that generates profits is taxed at a rate of 52 per cent after which the corporate owner may be taxed at rates up to 91 per cent. If the owner should decide to liquidate his enterprise during the year, his profits are subject to a capital gains tax amounting to 25 per cent. It is obvious that a businessman is tempted to generate a maximum amount of profits in a given year and then quickly sell or liquidate his enterprise. Thus, hundreds of efficient “collapsible” companies disappear every year.

Governments Create Cartels

Since the rise of political intervention in economic affairs, governments have frequently organized or fostered the organization of cartels. These are combinations of enterprises for the purpose of controlling the output or marketing of a commodity or trade through regulation of production, allocation of markets, price fixing, or other means. This regulation always aims at assuring the cartel members a “fair” income, which means a higher income than they otherwise would have.

The German government led the way toward cartelization of key industries. From about 1880 to 1930 it organized more than 2,100 cartels. It was prompted to this disastrous policy by yet another intervention: its labor legislation. Since the 1880’s, the German government had imposed tremendous “social” costs on its industry through social security legislation and other measures that increased labor costs and reduced labor efficiency. Without further government intervention, this social legislation would have put German producers at a competitive disadvantage against foreign producers. Under the new burden of social costs, they would have lost not only many foreign markets but probably some domestic markets as well. Then there would have been depression and unemployment until German wages declined sufficiently to offset the social security costs.

Instead of facing depression and unemployment, the German government decided to form cartels. It imposed high tariffs on foreign goods, which protected the German industries laboring under the heavy burden of labor legislation. Businessmen were thus enabled to raise prices, which meant that workers were obliged to pay for their social benefits through higher product prices instead of lower wages. In order to prevent unemployment in the export industries, the government encouraged them to sell their products at world market prices. Such sales involved losses, due to the burden of social costs, so the cartels adopted profit-sharing schemes by which the producers supplying the domestic market at higher prices were forced to subsidize exporters. Thus, the cartels commenced dumping, which tended to destroy the world market and the world division of labor.

In the United States the formation of trusts proceeded along similar lines. However, the motivating force was different. There was no social legislation depressing the American economy. Yet, the McKinley administration, by imposing high import restrictions, quite unintentionally achieved the same sort of trustification as was done intentionally by the Bismarck administration in Germany.

The Dingley Tariff of 1897, which became known as “the mother of trusts,” granted tariff protection to basic industries. With industrial imports from Europe greatly reduced, the American producers enjoyed monopolistic positions. Consolidations took place on a large scale. During the “Golden Age of Trusts” between 1897 and 1904, 425 trusts were organized with a total capital of more than $20 billion.

This trustification of American industry was promoted by yet another factor for which the government was solely responsible. This was the rapid credit expansion that culminated in the panic of 1907 and the ensuing depression. “Easy money” permitted the organization of new corporations. It made the promotion of combinations most profitable, as new securities could be sold at premium prices. Consequently, Wall Street financiers eagerly promoted mergers and reorganizations on a vast scale. When, in 1903, investors began to question the overcapitalization of the industrial combines, a trust-share panic developed which signaled the temporary end of trustification.

Two decades later, when the Federal Reserve System was flooding the capital market with huge quantities of new credit, gigantic trusts again made their appearance. Easy financing permitted the organization of powerful holding companies that controlled production through several layers of subsidiaries. They reigned supreme in all industries that were sheltered from healthy competition through government franchises, charters, tariffs, and other restrictions. In the field of public utilities, nine holding company systems— among which the Insull group was outstanding— controlled about three-quarters of the power resources in the United States. Holding companies dominated one-fifth of the railroad mileage. As was to be expected, this period of industrial combination came to an end with the stock market crash in 1929.

A few years later, the Roosevelt administration resorted to extensive industry combinations in order to control the American economy. Under the National Industrial Recovery Act, the industries were organized along the lines of a cartel with codes that regulated most phases of production. The objective was shorter work hours, reduced production, higher prices. Under the Agricultural Adjustment Act, American agriculture was organized to reduce production by plowing under crops and thus raise agricultural prices artificially. It is a record of history that all these measures failed dismally. Instead of reviving the economy, they kept it in the grip of deep and lengthy depression. But it was the American government that enacted and enforced these policies which the enemies of capitalism ascribe to private corporations.

Antitrust Legislation

The failure to distinguish between the monopolistic tendencies of government and the propensity of private corporations to grow to optimum size probably underlies the American antitrust movement. Our Founding Fathers were fully aware of this difference. They were so hostile to monopoly power granted by government that Thomas Jefferson wanted to include an antimonopoly provision in the articles of the Constitution. But their hostility was aimed at monopolistic policies as they were conducted by the colonial powers of Europe before the age of capitalism. They condemned “mercantilism” which was an economic system similar to modem socialism. As Adam Smith had pointed out, monopoly was “the chief engine of mercantilism.”

It was entirely natural that the nineteenth century disciples of capitalism should continue to oppose monopolistic endeavors. The common law as it developed in the United States reflected their attitude. But during the 1880’s, the prevailing ideology began to change. Under the influence of new schools of thought that were hostile to various aspects of capitalism, the American public began to view with alarm the growth of industrial enterprise. Advancing technology, especially in the manufacturing and transportation fields, and the rapid accumulation of capital, made private enterprises grow by leaps and bounds. But such growth in most cases merely moved toward optimum size. Of course, in some cases a very successful entrepreneur may have overexpanded his organization, which sooner or later resulted in losses and failure. In other cases, government franchises, patents, tariffs, and other trade restrictions actually promoted the growth of monopolies. But public opinion, which was molded by numerous “antimonopoly parties,” by the Populist and Grange movements, laid the blame solely on private enterprise. Thus, while the Founding Fathers had clearly recognized the role of government in every monopoly, their descendants from the 1880’s on saw only the “monopolizing businessman.”

Kansas was the first state to enact an antitrust law in 1889. It was quickly followed by other states. In 1890, in performance of campaign commitments and in response to widespread public demand, the federal government passed the Sherman Antitrust Act. The act set forth as a national policy the proposition that restraint of trade and monopolistic market positions of private corporations are contrary to the public interest. Later legislation included the Clayton Antitrust Act and the Federal Trade Commission Act, the Robin-son-Patman Act, certain provisions of the Wilson Tariff Act, the Webb-Pomerene Act, and the miscellaneous provisions of other acts.

Responsibility for the enforcement of the antitrust laws was placed with the Antitrust Division of the Department of Justice. From a modest beginning, this division has grown today into a large bureaucracy with swarms of lawyers and investigators. During President Harrison’s administration only seven cases were instituted against large corporations. President T. R. Roosevelt initiated 44 cases. Taft began 80, and Wilson 90. Coolidge’s administration instituted 83 prosecutions, Roosevelt’s 332, and Truman’s 169. It is significant that the Roosevelt administration filed its 332 formal charges although its National Industrial Recovery Administration had suspended the Sherman Act and was occupied with organizing the American economy along the lines of a cartel. Under President Eisenhower’s administration, the number of prosecutions per year promises to be even higher than under any preceding administration.

These figures suggest that the antitrust prosecution of American corporations shows a marked tendency toward acceleration. Two reasons may account for this ominous development. First, the growing antitrust bureaucracy feels compelled to bring proof for the justification of its existence and growth. An antitrust lawyer knows of no better evidence of his worth than the number of his prosecutions. Consequently, he will file more and more charges against businessmen. Then, these charges, being made in the limelight of nationwide publicity, poison the political atmosphere and create further business hostility that demands more charges. In fact, the antitrust charges of the U.S. Justice Department have created a badly distorted picture of our enterprise economy, which has contributed to the rise of a political ideology that is opposed to capitalism. Today, the Antitrust Division is an efficient arm of government omnipotence. It has prosecuted virtually every large corporation in the country and continues to embarrass and harass thousands of businessmen, especially the most eminent.

The New Ideology

Of course, the government lawyers and eager politicians offer a different explanation for the acceleration of their antitrust activity. According to them, the mature capitalist economy, such as the American, tends to deteriorate into a monopolistic economy that deprives small enterprises of fair and equal chances; increased monopolization requires increasing antitrust prosecution; the restraint of trade by big business is the cause, and the government actions are its effect, not vice versa.

No matter how plausible, this is a vicious line of thought taken from the armory of Marxism. According to Karl Marx, the proclaimed father of modem socialism and communism, the exploitation of the workers by the capitalists leads to industrial concentration and monopolization. A declining number of industrialists grow richer and richer while the masses of the people form an evergrowing army of paupers and unemployed. Finally, this process of concentration will come to a head when the people expropriate the expropriators. Thus, socialism is born.

Our statist politicians and antitrust bureaucrats embrace the first half of this Marxian explanation. They subscribe to the theory that our capitalist system breeds monopolies. But then they part with

Marx by proclaiming their desire to save this monopoly-breeding system from its own destruction. They propose to destroy the monopolies through government action.

We need not here refute this argumentation. Our foregoing discussion of potential competition, competition of substitutes, and the optimum size of capitalist enterprises contains a cogent refutation. But we wonder about the sincerity of the government intention to preserve our capitalist system. How can it seriously oppose monopolies if the government itself continuously is creating them?

A modem offshoot of the Marxian concentration theory is the “monopolistic competition theory” which is propagated at hundreds of our colleges and universities. It was first stated by Edward H. Chamberlin of Harvard University and Mrs. Joan Robinson of Cambridge University. Both believe that the old idea of alternative—either monopoly or competition—is fallacious, and that both situations are combined in our economic system. The monopoly of each producer in his own brand is the starting point that gives producers the power to “administer prices,” gouge consumers, and exploit workers. Pure or perfect competition, they believe, can only exist if the number of competing producers is large and if they deal in perfectly standardized products.

The foregoing discussion of potential competition clearly denies the requirement of numerous competitors. Competition is at work, even if there be only one producer. For, in an industry without government franchises or other entrance restrictions, the monopolist must act as if he were surrounded by hundreds of competitors. If he were to attempt to restrict output in order to raise prices, he would invite immediate invasion by other producers.

The requirement of a perfectly standardized product is based on the assumption that consumers can be pulled into a monopolistic grip by trade names, minor product variations, by advertisement, and other producer devices. Once you drive a Ford car, you will always be sold on Ford products. This consumer habit will give Ford a monopolistic position which entails the power to charge monopolistic prices.

We reject this assumption of a dull and gullible public. We believe that people continuously shop around, comparing the quality of products with different trade names and labels. Many consumers switch brands and suppliers, always seeking the better product for their money. Consequently, the

Ford manufacturers compete not only with General Motors cars, Chrysler cars, American Motors cars, all foreign cars, but also with the manufacturers of houses, freezers, washers, dryers, and so on. For the high price of one product may induce us to buy an entirely different product.

The monopolistic competition theory offers as frail a foundation for government antitrust activity as the Marxian concentration theory itself. Both fail to describe and explain capitalism. But they are succeeding in destroying American big business which is the mainstay of our high standard of living. In fact, they are destroying competition and individual enterprise.

Israel M. Kirzner

Advertising has been badly treated by many scholars who should know better. Not only Marxists and liberals, but even conservatives have given advertising a bad press. Let us examine some of the criticisms.

• First, many advertising messages are said to be offensive—by esthetic or ethical and moral standards. Unfettered, unhampered, laissez-faire capitalism, it is contended, would propagate such messages in a way that could very well demoralize and offend the tastes and morals of members of society.

• Second, advertising, it is argued, is deceitful, fraudulent, full of lies. Misinformation is spread by advertising, in print, on the airwaves, and this does harm to the members of society; for that reason advertising should be controlled, limited, taxed away.

• Third, it is argued that where advertising is not deceitful, it is at best persuasive. That is, it attempts to change people’s tastes. It attempts not to fulfill the desires of man but to change his desires to fit that which has been produced. The claim of the market economist has always been that the free market generates the flow of production along the lines that satisfy consumer tastes; their tastes determine what shall be produced—briefly, consumer sovereignty. On the contrary, the critics of advertising argue, capitalism has developed into a system where producers produce and then mold men’s minds to buy that which has been produced. Rather than production being governed by consumer sovereignty, quite the reverse: the consumer is governed by producer sovereignty.

• A fourth criticism has been that advertising propagates monopoly and is antithetical to competition. In a competitive economy, it is pointed out, there would be no advertising; each seller would sell as much as he would like to sell without having to convince consumers to buy that which they would not otherwise have bought. So, advertising is made possible by imperfections in the market. More seriously, it is contended, advertising leads toward monopoly by building up a wall of good will, a protective wall of loyalty among consumers which renders a particular product immune to outside competition. Competing products, which do not share in the fruits of the advertising campaign, find themselves on the outside. This barrier to entry may gradually lead a particular producer to control a share of the market which is rendered invulnerable to the winds of outside competition.

• Finally—and this in a way sums up all of these criticisms—advertising is condemned as wasteful. The consumer pays a price for a product which covers a very large sum of money spent on advertising. Advertising does not change the commodity that has been purchased; it could have been produced and sold at a much lower price without the advertising. In other words, resources are being used and paid for by the consumer without his receiving anything that he could not have received in their absence.

These are serious criticisms. We have learned to expect them to be emphasized by contemporary liberal economists. To Marxist thinkers, again, advertising is essential for capitalism; it is seen as a socially useless device necessary in order to get excess production sold. They see no positive elements in advertising at all. But even conservative thinkers and economists have pointed out some apparent limitations, weaknesses, criticisms of advertising.

The Free Economy and How It Functions

It is not my purpose here to defend each and every advertising message. I would rather discuss a free economy, a laissez-faire economy, pure capitalism. I would like to show that in such a world, advertising would emerge with a positive role to play; that it would add to the efficiency with which consumer wants are satisfied; and that, while the real world is far from perfect, a large volume of the criticism would fade away were it understood what role advertising, in fact, has to play in a pure market economy.

Let me imagine a world, a free market, in which there are no deceitful men at all. All the messages beamed to consumers and prospective consumers would be, as far as the advertisers themselves believe, the strict truth. We will consider later the implications of the fact that men are imperfect and that men succumb to the temptation in selling something to say a little bit less, a little bit more, than the exact truth. In the meantime, let us talk about a world of honest men, men who do not try to deceive.

Further, let us imagine a pure market economy with government intervention kept to the absolute minimum—the night watchman role. The government stands to the sidelines and ensures the protection of private property rights, the enforcement of contracts freely entered into. Everyone then proceeds to play the game of the free market economy with producers producing that which they believe can be sold to the consumers at the highest possible money price. Entrepreneur producers, who detect where resources are currently being used in less than optimum fashion, take these resources and transfer them to other uses in the economy where they will serve consumer wants which the entrepreneurs believe are more urgently desired, as measured by the amounts of money consumers are willing to pay for various products.

We will assume that there is freedom of entry into all industries. No entrepreneur has sole control over any resource that is uniquely necessary for the production of a given product. No government licenses are required in order to enter into the practice of a given profession or to introduce a particular product. All entrepreneurs are free to produce what they believe to be profitable. All resource owners are free to sell their resources, whether labor, natural resources, capital goods. They are free to sell or rent these resources to the highest bidder. In this way the agitation of the market gradually shuffles resources around until they begin to be used to produce those products which consumers value most highly. Consumers arrange their spending to buy the commodities they believe to be most urgently needed by themselves. And the market flows on in the way that we understand it.

Open Competition

We say this is a free market, a laissez-faire, competitive system. But we do not mean a perfectly competitive market, as this notion has been developed by the neo-classical economists. In a perfectly competitive market, each seller faces a demand curve which is perfectly horizontal. That is to say, each seller believes that he can sell as much as he would like to sell without having to lower the price. Each buyer faces a perfectly horizontal supply curve and each buyer believes that he can buy as much as he would like to buy of anything without having to offer a higher price. In such a world of “perfect competition,” we have what we call an “equilibrium” situation, that is a situation where all things have already been fully adjusted to one another. All activities, all decisions have been fully coordinated by the market so that there are no disappointments. No participant in the economy discovers that he could have done something better. No participant in the economy discovers that he has made plans to do something which it turns out he cannot do.

In this model of the perfectly competitive economy, there would in fact be no competition in the sense in which the layman, or the businessman, understands the term. The term “competition” to the businessman, the layman, means an activity designed to outstrip one’s competitors, a rivalrous activity designed to get ahead of one’s colleagues, or those with whom one is competing. In a world of equilibrium, a world of “perfect competition,” there would be no room for further rivalry. There would be no reason to attempt to do something better than is currently being done. There would, in fact, be no competition in the everyday sense of the term.

When we describe the laissez-faire economy as competitive, we mean something quite different. We mean an economy in which there is complete freedom of entry; if anyone believes that he can produce something that can serve consumers’ wants more faithfully, he can try to do it. If anyone believes that the current producers are producing at a price which is too high, then he is free to try to produce and sell at a lower price. This is what competition means. It does not mean that the market has already attained the “equilibrium” situation, which goes under the very embarrassing technical name of “perfectly competitive economy.”

Now, economists and others understand generally that competition means price competition: offering to sell at a lower price than your competitors are asking, or offering to buy at a higher price than your competitors are bidding. Entrepreneurs will offer higher prices than others are offering for scarce labor. They will offer to sell a product at lower prices than the competing store is asking. This is what price competition means. This is the most obvious form in which competition manifests itself.

However, we must remember that there is another kind of competition, sometimes called “nonprice competition,” sometimes called “quality competition.” Competition takes the form not only of producing the identical product which your competitors are producing and selling it at a lower price, not only in buying the identical resource which your competitors are buying and offering a higher price. Competition means sometimes offering a better product, or perhaps an inferior product, a product which is more in line with what the entrepreneur believes consumers are in fact desirous of purchasing. It means producing a different model of a product, a different quality, putting it in a different package, selling it in a store with a different kind of lighting, selling it along with an offer of free parking, selling through salesmen who smile more genuinely, more sincerely. It means competing in many, many ways besides the pure price which is asked of the consumer in monetary terms.

With freedom of entry, every entrepreneur is free to choose the exact package, the exact opportunity which he will lay before the public. Each opportunity, each package has many dimensions. He can choose the specifications for his package by changing many, many of these variables. The precise opportunity that he will lay before the public will be that which, in his opinion, is more urgently desired by the consumer as compared with that which happens to be produced by others. So long as there’s freedom of entry, the fact that my product is different from his does not mean that I am a monopolist.

The late Professor Edward H. Chamberlin of Harvard did economics a great disservice in arguing that because a producer is producing a unique product, slightly different from what the fellow across the street is producing, in some sense he is a monopolist. So long as there’s freedom of entry, so long as the man across the road can do exactly what I’m doing, the fact that he is not doing exactly what I’m doing is simply the result of his different entrepreneurial judgment. He believes that he can do better with his model. I believe I can do better with mine. I believe that free parking is more important to consumers than fancy lighting in the store. He gives a different package than I do. Not because he couldn’t do what I’m doing, not because I couldn’t do what he’s doing, but because each believes that he knows better what the consumer is most anxious to acquire. This is what we mean by competition in the broadest sense, not merely price competition, but quality competition in its manifold possible manifestations.

Professor Chamberlin popularized a distinction which was not original with him but which owes its present widely circulated popularity primarily to his work. That is a distinction between “production costs” and “selling costs.” In his book of almost forty years ago, The Theory of Monopolistic Competition, Chamberlin argued that there are two kinds of costs which manufacturers, producers, sellers, suppliers incur. First, they incur the fabrication costs, the costs of producing what it is they want to sell. Second, they incur additional expenditures that do not produce the product or change it or improve it, but merely get it sold. Advertising, of course, is the most obvious example which Chamberlin cited. But “selling costs” of all kinds were considered by him to be sharply different from “production costs.” In his original formulation, Chamberlin argued that “production costs” are costs incurred to produce the product for a given Demand Curve while “selling costs” simply shift the Demand Curve over to the right. That is to say, the same product is now purchased in greater quantities at a given price but the product is the same.

A False Distinction

The fallacy in the distinction between production costs and selling costs is fairly easy to notice. In fact, it is impossible for the outside observer—except as he resorts to arbitrary judgments of value— to distinguish between expenditures which do, and expenditures which do not, alter the product. We know as economists that a product is not an objective quantity of steel or paper. A product is that which is perceived, understood, desired by a consumer. If there are two products otherwise similar to the outside eye which happen to be considered to be different products by the consumer, then to the economist these are different products.

Ludwig von Mises gives the example, which cannot be improved upon, of eating in a restaurant. A man has a choice of two restaurants, serving identical meals, identical food. But in one restaurant they haven’t swept the floor for six weeks. The meals are the same. The food is the same. How shall we describe the money spent by the other restaurant in sweeping the floor? “Production costs” or “selling costs?” Does sweeping change the food? No. Surely, then, it could be argued that this is strictly a “selling cost.” It is like advertising. The food remains the same; but, because you have a man sweeping out the floor, more people come to this restaurant than to that. But this is nonsense. What you buy when you enter a restaurant is not the food alone. What you buy is a meal, served in certain surroundings. If the surroundings are more desirable, it’s a different meal, it’s a different package. That which has been spent to change the package is as much production cost as the salary paid to the cook; no difference.

Another example that I recall was the case of the coal being run out of Newcastle and traveling along the railroad toward London. Every mile that coal travels nearer the London drawing room, the Demand Curve shifts over to the right. How shall we describe that transportation cost? “Production cost” or “selling cost?” Of course, it’s “production cost.” In fact, it’s “selling cost” too. All “production costs” are “selling costs.” All costs of production are incurred in order to produce something which will be more desirable than the raw materials.

You take raw meat and turn it into cooked steak. The act of changing the raw meat into cooked steak is to make the consumer desire it more eagerly. Does this simply shift the Demand Curve over to the right? Of course, it does that. It does it by changing the product.

Another example supposes there are two identical pieces of steel, except that one piece has been blessed, while the other piece is subject to a spiritual taint, which to the scientist is not there but which is very vivid and vital to the consumer. How shall we describe the expenditure on the commodities? Shall we describe the difference between them as nonexistent? Or should we not recognize that, if something is spiritually tainted to the consumer—in his view, not necessarily in mine or yours or the economist’s or other than in the mind of the consumer—then he will not buy the tainted item, even though to the objective laboratory scientist there’s no difference between the items? The economist has recognized these as two different commodities. There’ll be two Demand Curves. The fact that the scientist doesn’t see any difference—they look the same, they smell the same, if you touch them they feel the same—is irrelevant. We know, as economists, that what we find in a commodity is not the objective matter that is inside it, but how it is received by the consumer.

Clearly then, the distinction between a so-called “selling cost” and “production cost” is quite arbitrary. It depends entirely on the value judgments of the outside observer. The outside observer can say that this particular selling effort does not change the product, but in that situation he is arrogating to himself the prerogative of pronouncing what is and what is not a product. That is something which violates our fundamental notions of individual consumer freedom: that a consumer’s needs are defined by no one else other than himself. This may seem quite a detour from advertising and yet it is all relevant to the question of what role advertising has to play.

The Provision of Information

Let us consider how some of these notions apply to the matter of information. One of the standard defenses for advertising is that it provides a service which consumers value: the provision of knowledge, the provision of information. People buy books. People go to college. People enroll in all kinds of courses. Advertising is simply another way of providing information. To be sure, it would seem that the information provided by suppliers comes from a tainted source, but don’t forget that we are imagining for the meantime a world without deceitful people.

We can even relax that assumption for a moment. It may be cheaper for the consumer to get his information from the supplier or the producer than from an outside source. In other words, if you, a consumer, have the choice of acquiring information about a particular product—either more cheaply from the producer or more expensively from an outside, “objective” source—you may decide that, on balance, you’re likely to get a better deal, penny-for-penny, information-wise, by reading the information of the producer, scanning it perhaps with some skepticism, but nonetheless relying on that rather than buying it from an outside source. Technically, this involves what is known as the problem of transactions costs. It may be more economical for the information to be packaged together with the product, or at least to be produced jointly with the product, than to have the information produced and communicated by an outside source. This is a possibility not to be ignored.

Advertising provides information, and this goes a long way to explain the role which advertising and other kinds of selling efforts must play. Does this not seem to contradict the point just made, that there is no distinction between “production costs” and “selling costs”? Surely information about a product is distinct from the product. Surely the costs incurred to provide information are a different kind of costs than the costs incurred to produce the product. The answer is clearly, no. Information is produced; it is desired; it is a product; it is purchased jointly with the product itself; it is a part of the package; and it is something which consumers value. Its provision is not something performed on the outside that makes people consume something which they would not have consumed before. It is something for which people are willing to pay; it is a service.

You can distinguish different parts of a service You can distinguish between four wheels and a car. But the four wheels are complementary commodities. That is to say, the usefulness of the one is virtually nil without the availability of the other. The car and gasoline are two separate products, to be sure, and yet they are purchased jointly, perhaps from different producers, different suppliers, but they are nonetheless parts of a total package, a total product. If it happens that the information is produced and sold jointly with the product itself, then we have no reason to question the characteristics of the costs of providing information as true “production costs,” not producing necessarily the physical commodity about which information is produced, but producing information which is independently desired by consumers, independently but jointly demanded, complementarily used together with the “product” itself. In other words, the service of providing information is the service of providing something which is needed just as importantly as the “product” itself.

There is another aspect of advertising which is often overlooked. Information is exceedingly important. But, surely, it is argued, information can be provided without the characteristics of advertising that we know, without the color, without the emotion, without the offensive aspects of advertising. Surely information can be provided in simple straightforward terms. The address of this and this store is this and this place. These and these qualities of commodities are available at these and these prices. Why do illustrated advertising messages have to be projected? Why do all kinds of obviously uninformative matter have to be introduced into advertising messages? This is what renders the information aspects of advertising so suspect. The Marxists simply laugh it away. They say it is ridiculous to contend that advertising provides any kind of genuine information. If one rests the defense of advertising on its informative role, then one has a lot of explaining to do. One has to explain why information that could be provided in clear cut, straightforward terms is provided in such garish and loud forms, in the way that we know it.

The answer, I think, is that advertising does much more than provide information which the consumer wishes to have. This is something which is often overlooked, even by economists. Supposing I set up a gas station. I buy gasoline and I have it poured into my cellar, my tanks. I have a pump carefully hidden behind some bushes, and cars that come down the road can buy gas if they know that I’m here. But I don’t go to the effort to let them know I’m here. I don’t put out a sign. Well, gas without information is like a car without gas. Information is a service required complementarily with the gas.

Supposing, then, I take a piece of paper, type very neatly in capital letters, “GAS,” and stick it on my door. Cars speed down the road in need of gas, but they don’t stop to read my sign. What is missing here? Information is missing. Don’t people want information? Yes. They would like to know where the gas station is, but it’s a well kept secret. Now, people are looking for that information. It’s my task as an entrepreneur not only to have gas available but to have it in a form which is known to consumers. It is my task to supply gas-which-is-known-about, not to provide gas and information.

I have not only to produce opportunities which are available to consumers; I have to make consumers aware of these opportunities. This is a point which is often overlooked. An opportunity which is not known, an opportunity to which a consumer is not fully awakened, is simply not an opportunity. I am not fulfilling my entrepreneurial task unless

I project to the consumer the awareness of the opportunity. How do I do that? I do that, not with a litde sign on my door, but with a big neon sign, saying GAS; and better than that I chalk up the price; and better than that I make sure that the price is lower than the price at nearby stations; and I do all the other things that are necessary to make the consumer fully aware of the opportunity that I am in fact prepared to put before him. In other words, the final package consists not only of abstract academic information but in having the final product placed in front of the consumer in such a form that he cannot miss it.

Free $10 Bills!

The strange thing about the world in which we live is that it is a world in which $10 bills are floating around, free $10 bills! The problem is that very few of us notice these $10 bills. It is the role of the entrepreneur to notice the existence of $10 bills. An entrepreneur buys resources for $10 and he sells the product for $20. He is aware that resources available for $10 are currently being used in less than optimum fashion, that commodities for which consumers are willing to pay $20 are not being produced, and he puts these things together. He sees the $10 bill and makes the combination which other people do not see. Anybody might do it—freedom of entry. The entrepreneur notices the $10 bill, gets it for himself by placing in front of the consumer something which he had not noticed. If the consumer knew where he could buy resources for $10 and get the product that is worth $20, he wouldn’t buy from the entrepreneur. He would do it himself. Since he doesn’t know, I, as entrepreneur, have to create this opportunity and make the consumer aware.

It is not enough to buy gas and put it in the ground. The entrepreneur puts it in the ground in a form that the consumer recognizes. To do this requires much more than fabrication. It requires communication. It requires more than simple information. It requires more than writing a book, publishing it, and having it on a library shelf. It requires more than putting something in a newspaper in a classified ad and expecting the consumer to see it. You have to put it in front of the consumer in a form that he will see. Otherwise, you’re not performing your entrepreneurial task.

Advertising has grown. Compare the volume of advertising today with the volume of 100 years ago and it has grown tremendously. More! Consider the price of a commodity that you buy in a drug store or in a supermarket. Find out what portion of that price can be attributed to advertising costs and it turns out that a much larger percentage of the final cost to the consumer can be attributed to advertising today than could have been attributed 50 years ago, 70 years ago, 100 years ago. Why is this? Why has advertising expenditure grown in proportion to total value of output? Why has advertising expenditure grown in proportion to the price of a finished commodity? Why has advertising apparently grown more offensive, more loud, more shrill? It’s fairly easy to understand.

I give, as example, the lobby walls of a college building that I know very well. At one time this was a handsome lobby with walls of thick marble; you could walk from one end of the building to the other and the walls would be clear. Some years ago an enterprising entrepreneur decided to use some free advertising space. He pasted up a sign. It was the only sign on the wall; everybody looked at it, saw the message. I don’t remember what the message was or whether it was tom down, but I do remember that soon afterward those walls were full of signs. As you walked down the passage, you could read all kinds of messages, all kinds of student activities, non-student activities, student nonactivities. It was fairly easy to leam about what was going on simply by reading the signs.

At first, the signs did not have to be big. But as advertisers saw the opportunity, the free space gradually filled up. The Ricardian rent theory came into play; all the free land was in use. And as the free land or space was taken, of course, it became more and more important to get up early to paste up your sign. That was the “rent,” the high price, getting up early. But more than that, it became necessary now to arouse all kinds of interest in me in order to get me to read these signs. In other words, the variety and multiplicity of messages make it harder and harder to get a hearing.

The Price of Affluence

We live in a world which is often described as an “affluent society.” An affluent society is one in which there are many, many opportunities placed before consumers. The consumer enters a supermarket and if he is to make a sensible, intelligent decision he is going to have to spend several hours calculating very carefully, reading, rereading everything that’s on the packages and doing a complete research job before feeding all the information into the computer and waiting for the optimum package to be read off. It’s a tough job to be a consumer. And the multiplicity of opportunities makes it necessary for advertisers, for producers, to project more and more provocative messages if they want to be heard. This is a cost of affluence. It is a cost, certainly; something that we’d much rather do without, if we could; but we can’t.

The number of commodities that have been produced is so great that in order for any one particular product to be brought to the attention of the consumer a large volume of advertising is necessary. And we can expect to get more and more. Is it part of production costs? Very definitely, yes. It is completely arbitrary for anyone to argue that, whether or not the consumer knows it, the commodity is there anyway, so that when he pays the price which includes the advertising communication he is paying more than is necessary for the opportunity made available. For an opportunity to be made available, it must be in a form which it is impossible to miss. And this is what advertising is all about.

One more word about the offensiveness of advertising. Ultimately in a free market, consumers tend to get what they want. The kinds of products produced will reflect the desires of the consumer. A society which wants moral objects will get moral objects. A society which wants immoral objects will tend to get immoral objects. Advertised communication is part of the total package produced and made available to consumers. The kind of advertising we get, sad to say, is what we deserve. The kind of advertising we get reflects the kind of people that we are. No doubt, a different kind of advertising would be better, more moral, more ethical in many respects; but I’m afraid we have no one to blame but ourselves, as in all cases where one deplores that which is produced by a market society.

A final word about deceit. Of course, deceitful advertising is to be condemned on both moral and economic grounds. But we have to put it in perspective. Let me read from one very eminent economist who writes as follows:

“The formation of wants is a complex process. No doubt wants are modified by Madison Avenue.

Take with a Grain of Salt

In other words, we live in a world where you have to be careful what you read, to whom you listen, whom to believe. And it’s true of everything, every aspect of life. If one were to believe everything projected at him, he would be in a sorry state.

It is very easy to pick out the wrong messages to believe. Now, this doesn’t in any way condone or justify deceitful messages of any kind. We have to recognize, however, while particular producers may have a short-run interest in projecting a message to consumers of doubtful veracity, that so long as there’s freedom of competition the consumer has his choice not only of which product to buy but whom to believe. And notice what is the alternative in this world of imperfect human beings. The alternative, of course, is government control— still by imperfect human beings. So there is no way to render oneself invulnerable to the possibility of false, fraudulent, deceitful messages.

It would be nice to live in a world where no deceitful men were present. It would be cheaper. You could believe any message received. You wouldn’t have to check out the credentials of every advertiser. But that is not the world in which we live. You check out the credit standing of individuals, the character of people with whom you deal; and this is an unavoidable, necessary cost. To blame advertising for the imperfections and weaknesses of mankind is unfair. Advertising would exist under any type of free market system. Advertising would be less deceitful if men were less deceitful. It would be more ethical, less offensive, if men were less offensive and more ethical. But advertising itself is an integral, inescapable aspect of the market economy.

Footnotes

1 From Ideas on Liberty, September 1955

2 The O.P.A. (established 1941) had its counterpart in the Price Commission, set up under the President’s Wage-Price Freeze, August 15, 1971, and new control boards will undoubtedly be created if new controls are enacted.

3 From an address delivered before the Queensway Lions Club (Toronto, Canada) February 10, 1954

4 From The Freeman, January 1966

5 From The Freeman, April 1963

6 From The Freeman, March 1960

7 From The Freeman, September 1972

8 H. Demsetz, “The Technostructure, Forty-Six Years Later,” (Yale Law Journal, 1968), p. 810.

• 1THE COW IN THE APARTMENT49.*
• 2The man who deposits a bottle full of milk before my apartment door every morning is in trade, even though he belongs to a driver’s union; and his being in trade is a way of helping me and others. Since I live in an apartment in the city, I can’t keep a cow handy, even if I knew how to milk her. Even if it were possible for me to keep a cow in the apartment, the cow would produce more milk than I can use. I couldn’t stop milking her; for if I did, she would go dry. I would have an unproductive cow on my hands in an apartment, and the cost of feeding and cleaning up after her would be great. If I tried to get back some of the cost by selling the surplus, I would have to go into business, buy bottles and sterilizing and pasteurizing chemicals and equipment, solicit customers, keep books, keep publicly displayed the O.P.A.49.1 milk prices, file and pay quarterly income taxes, get, display, and keep paid up on, the necessary licenses, submit to regular federal, state, and municipal food and hygiene inspection, promptly report all symptoms of hoof-and-mouth disease, ticks or other cow afflictions, dun my delinquent customers, and Lord knows what all—and the surplus milk from one cow would cost me X-dollars for every 28¢ bottle of milk I sold.
• 3FREEDOM TO SHOP AROUND50.*
• 4SIX MISCONCEPTIONS ABOUT CONSUMER WELFARE51.*
• 5IS ECONOMIC FREEDOM POSSIBLE?52.*
• 6THE PHANTOM CALLED “MONOPOLY”53.*
• 7ADVERTISING54.*
• 8They are modified by Washington, by the university faculties and by churches. And it is not at all clear that Madison Avenue has the advantage when it comes to false claims and exaggerations.”54.1